First-time home buyers to be turned away by federal mortgage changes

Renters who've been saving up money to buy their first home will be heartbroken by new mortgage rules, says the owner of a St. John's real estate company.

"It's going to keep buyers out of the market for longer so it's going to keep them in rental positions for a longer period of time," said Mark Norman, a mortgage broker and co-owner of Norman Lane Real Estate.

"People who can afford $1,500 in rent now won't be able to afford a $1,100 or $1,200 mortgage payment." 

The new rules were announced in Ottawa Oct. 3. They come into effect on Oct. 17.

Finance Minister Bill Morneau announced Monday that under the new rules, all insured mortgages must undergo a "stress test" that verifies a borrower's ability to continue to make mortgage payments at a higher interest rate.

• Ottawa tightens mortgage requirements and targets foreign money

Effectively, that means borrowers will be required show they'll be able to pay their mortgage at rates as high as the big banks's five-year mortgage rates, which the Bank of Canada says currently average 4.64 per cent. 

That requirement was already in place for some people with small down payments, and people who borrowed money on terms under five years, but after Oct. 17 any insured mortgages will be tested against that higher standard.

Will change real estate markets

Norman expects the effects will ripple through the whole housing market.

"Just now as interests are really affordable and you have house prices that have come down from it high of four years ago this new legislation intervenes to put home owners at a disadvantage, said Norman.

It's going to keep a lot of people out of the market from buying.- Mark Norman

"If somebody was planning to move up from a $250,000 house to a $350,000 house, well now they can no longer qualify for that $350,000 house. So it's going to keep a lot of people out of the market from buying or moving up into that house that they need."

Protects big banks

Norman doesn't believe these mortgage rule changes are necessary.

"The big banks are going to benefit [more] than anybody here because some of the secondary changes are taking the low-cost lenders out of the market."

Norman said the new measures won't affect foreign investors who are driving up housing prices in some Canadian markets because those investors aren't borrowing money in Canada to buy properties.

He said they are turning cash they already have into safe brick-and-mortar assets.