CMHC tightens mortgage insurance rules starting July 1
The government-backed Canada Mortgage and Housing Corp said on Thursday it would tighten rules for offering mortgage insurance from July 1, after forecasting declines of between 9 and 18 percent in home prices over the next 12 months.
CMHC is establishing a minimum credit score of 680 instead of the current 600, the group said in an emailed statement.
It will also limit total gross debt servicing ratios to its standard requirement of 35 percent of annual income, compared with a threshold as high as 39 percent currently, and total debt servicing to 42 percent versus as much as 44 percent now.
The measures will help curtail "excessive demand and unsustainable house price growth," CMHC CEO Evan Siddall said in the statement.
He said COVID-19 has exposed longstanding financial-market vulnerabilities, and "we must act now to protect the economic futures of Canadians."
James Laird, the co-founder of Ratehub.ca and president of mortgage brokerage CanWise, said the change to the debt service ratio will have the biggest impact of the three changes.
That's because under the current gross debt service ratio cap of 39 percent, a family with an annual income of $100,000 and a 10 percent down payment would have qualified to buy a home valued at up to $524,980, Laird calculates. Under the new rules, that same family can only get approved to buy a home worth $462,860 — a reduction of 12 percent.
Laird said the most impactful development was the CMHC's decision to leave minimum down payment sizes where they are. "The biggest news coming out of the announcement from the CMHC is that they did not increase the minimum down payment from 5 percent to 10 percent," he said.
Such a move would have required any buyers to have far more saved up before being approved to buy, which would make the pool of potential buyers much shallower.
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