Home Ownership Dangerously More Accessible
June 8, 2020
Allowing more homeowners to qualify to purchase a home has many inherent risks. Buyer Beware, writes Peter Watson.
A change allowing more home buyers to qualify for a larger mortgage started April 6, 2020.
This move could backfire.
The change has to do with the “stress test” implemented a few years ago to help cool the red-hot real estate market primarily in Toronto and Vancouver.
This has been fairly controversial.
The stress test made it harder for home buyers to qualify for a mortgage.
Many had suggested those restrictions be eased. That included real estate agents, mortgage brokers and homebuilders.
Those preferring a higher qualifying threshold for home buyers using mortgage financing came from those concerned about the potential risk to the Canadians and our economy.
Others remain strongly in the camp of those that opposed the weakening of the stress test.
Let’s look at this topic through the eyes of a prospective home purchaser.
At first glance they would be happy. Now they can qualify for their dream home.
House prices are influenced by the fundamentals of economics. Supply and demand.
The supply of houses remains the same.
What has changed is the ease of mortgage financing. More people can pay more for a house because of easier mortgage qualification standards.
That increases demand. It is good for you the home buyer, and good for every other home buyer.
Increased demand pushes up house prices. The lucky seller has more people lined up that can now afford to pay top dollar.
Is this enhanced financing option a financial trap?
Financial circumstances change. How could they affect you the homeowner?
Negative situations could arise from one, or more, members of the household losing a job. What happens if there is a significant increase in interest rates when it is mortgage renewal time?
Will continued house price escalation stop?
With home ownership comes debt ownership. We recommend caution when making your home ownership decision.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com