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CMHC’s rule-tightening will have little impact on the real estate market

The Canada Mortgage and Housing Corporation (CMHC) has tightened the eligibility criteria for its mortgage loan insurance. The restrictions are an attempt to reduce housing-related debt and prevent problems for certain Canadian households should house prices fall significantly.

Many consumers are wondering how this decision will impact Quebec’s real estate market over the coming months.

Limited impact for the time being

The CMHC’s changes are limited in scope. According to Gérard Bérubé’s Resserrement immobilier column (in French only) published on June 13, 2020 in Le Devoir, the CMHC insures around half of all mortgages. The other half are insured by the private sector, by companies like Genworth and Canada Guaranty. Note that these companies have not changed their criteria.

Martin Desfossés, real estate coach at DuProprio, explains: “You have to understand that a bank’s role is to lend money. So they’ll find a way to do that. As it stands now, if a bank is denied mortgage insurance through the CMHC, it will turn to private companies. Consumers will therefore feel little, if any, impact.”  

Minor changes to the criteria

The CMHC has made changes to three of its eligibility criteria:

  • Applicants need a credit score of at least 680, up from 600.
  • The maximum accepted debt ratios have been lowered, from 39 to 35% for the GDS1 and from 44 to 42% for the TDS2.
  • Non-traditional down-payment sources (personal loan or credit margin), which raise one’s debt, will no longer be accepted for mortgage insurance purposes.

An examination of each of these criteria revealed that they will also have relatively little impact. According to Gérard Bérubé’s column, only 5.9% of applicants in the first quarter of 2020 had a credit score below 680. Also, several banks were already applying debt ratio criteria similar to the CMHC’s. Finally, non-traditional sources of down payment can easily be replaced with existing government programs, like the Home Buyers’ Plan (HBP).

In short, homeowners and buyers can rest easy, at least for now. The COVID-19 crisis has caused a great deal of uncertainty in many areas, including the real estate sector. In situations like these, the best approach will always be to carefully examine your needs and financial capabilities, live within your means and maintain a certain flexibility. 

1. The gross debt service (GDS) ratio is the percentage of monthly household income that covers housing costs (mortgage principal and interest, municipal and school taxes, etc.). 2. The total debt service (TDS) ratio is the percentage of monthly household income that covers housing costs and any other debts and obligations (credit cards, vehicles, various leases, etc.).