October 4, 2018
                   No. 226
New CMHC Policies Affect Rent 2 Own
Changes in the real estate landscape, largely due to of government influence through CMHC (the government controlled national housing authority), are affecting rent 2 own opportunities—for better and for worse.

Three things, particularly, stand out.

First, the so-called “stress test” introduced by CMHC more than a year ago is still taking a lot of people out of the market. This policy, whereby a potential mortgagee needs to qualify for a mortgage two percentage points higher than the one they will actually get, is designed to prevent people from overextending themselves in a low interest rate environment so that they will be unable to afford their mortgage payments when interest rates rise.

When the policy went into effect, it reduced by about 20% the value of property one could qualify for. With home prices as they are in the southwest corner of BC, it took a lot of people out of the market. 

Some of them sought out the rent 2 own option, but we could not really help them because, at the end of the day, we are also stuck to these policies if we want our clients to succeed.Which brings us to the second, and related, point. The world and Canadian economies are doing well, so interest rates keep rising. Rates have increased in four increments of ¼% each over the last year, with projections of another ½% increase between now and mid-winter. 

One would think that with rising rates, the two percent gap of the stress test would be reduced and eventually not be needed. That has not yet happened. The result is that the value of homes people qualify for keeps decreasing with every rate increase. With incomes not rising in lock-step with those rates, it is taking many more out of home ownership, or forcing them to abandon their dreams of a single-family home in favour of a condo or a townhouse.

These policies have, to some extent, had their desired effect, that of dampening housing prices in areas where they were rising rapidly. While this may ameliorate the runaway housing price increases, for many it is too late. If prices had already risen by 50% over the previous years, a slight modification won’t get them back into the market.

As a result, we’re seeing a movement toward more affordable areas: from Metro Vancouver to the Fraser Valley, for example, and from the Fraser Valley to the interior. The result is that places like Merritt, Kamloops, and Cariboo country and the Okanagan are experiencing rising values at a time when the southwest corner is experiencing a softening of prices. It’s a good time to be buying in those areas, and we have been able to assist a number of families with rent 2 owns in those areas this summer.

A third CMHC policy initiative, though, is designed to help some would-be homeowners, namely the self-employed. Recognizing the increasing numbers of self-employed in our society, and their value to the economy, CMHC moved to make it easier for them to qualify for mortgages. 

Self-employed people have a much more difficult time qualifying for a mortgage because their incomes tend to be less consistent and less reliable than salaried people.

In a number of situations, we have been able to step in to help self-employed people qualify by giving them time to revise how they declare their incomes, in order to meet the standards. 

Policy changes came into effect October 1. With the new policy, CMHC is allowing lenders to be more flexible in how they qualify self-employed income. The policy shortens the period required for the self-employed to show stability in their income and broadens the range of documents allowed for satisfying income and employment requirements.

Making it easier for the self-employed to qualify for a mortgage also makes it easier for Rent 2 own operators to qualify such clients for their rent 2 own programs. In some cases, it may reduce the length of the program; in others, it may qualify some who would not otherwise qualify.

If you are self-employed, and have become frustrated with the challenge of getting into home ownership because of the previous harsh policies, these changes may help.

And we will do our best to assist you, as well.

Award-winning* Fraser Valley Rent 2 Own is a founding member of the Canadian Association of Rent to Own Professionals (www.CAROP.ca)
* winner of all-star awards, 2012, 2014, 2015 at the Rent 2 Own Summit.
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