IN FOCUS: Canadian Mortgage Environment

Are investors prepared for the new financing landscape?

Mar 27, 2017

Most real estate investors are aware of the measures and rules that the government is implementing as part of its desperate attempts to cool the country’s booming real estate market. But are investors fully aware of the impact that the federal government’s recent regulation changes could have on them? Shawn Stillman, Director, Principal Broker at, thinks not.

“The federal government did a very good job of burying the rule changes in a press release about the perceived ‘devil’ in Canada’s real estate market: foreign buyers,” Stillman says. “As a result, a lot of investors are not fully aware of how drastically the landscape has changed and how it will continue to do so if the rest of the federal government’s ideas come into play.”

The proposal that Stillman is referring to is risk sharing, which would see lenders take on a greater share of mortgage defaults as the government pushes to decrease taxpayer exposure to the country’s housing market. In a “first loss” approach, lenders would be responsible for a fixed portion of an outstanding loan amount at time of default. In the second option, banks would pay a percentage of the total loan loss. In one scenario, costs to lenders may raise 20 basis points to 30 basis points.

“If lenders are forced to take on risk when they insure a mortgage it’s going to have a negative impact for Canadian real estate investors. Risks in Toronto are going to be assessed differently to risks in New Brunswick or Fort McMurray,” Stillman says.  “With the CMHC, everyone has been treated equally and got the same rate regardless of location. Once you start having risk based pricing coming in, home buyers are going to have trouble securing funding.”

Ultimately, the government’s new proposals would result in the CMHC and the insurance companies no longer backing single unit rentals, which are the backbone of the investor market. “People don’t buy four and five unit buildings and rent them out; people get started in single family units,” Stillman says. “Because they’re not going to be insurable, rates will go up because most lenders can’t lend on those anymore.”

“All of sudden something that was cash flow positive or neutral is going to switch to a negative.”


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