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New Mortgage Rules Have Unintended Consequences for Renters

The new mortgage stress test rules are starting to show their effects as more renters decide not to enter the housing market.

Consequences for renters

One of the unintended consequences of the new mortgage rules is that because less people are buying homes, rental prices of condos and apartments in Toronto have surged more than 10% over last year. The average monthly condo rental in Toronto is now $2206.

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While demand for rental units is going up, supply is naturally going down – a 12% drop in fact from last year. Conditions are expected to improve for renters toward the end of the year as there are about 60,000 more units currently under construction, however the current increased rental prices are only going to make it that much more difficult for renters to save up for a home of their own.

Consequences for investment property owners

Those who own rental units in Toronto are facing a problem of their own. Thanks to rising interest rates, it is estimated that at least 44% of investors who bought condos to rent out in 2017 are in a negative cash flow – meaning that the rental income they receive is not sufficient to cover their mortgage and condo fees.

Of these, about 45% were less than $500 short, while just over 34% were more than $1000 short.

Possible outcomes

If investment property owners who are not earning sufficient income from renters to cover their mortgage decide to sell then the boost in supply could lead to a market slowdown – and this may be good news for renters who are looking to enter the housing market.

If you are currently renting but would like to purchase your own home, it makes sense to take steps now to see what you could qualify for when the market finally cools down. By consulting with a mortgage professional you can learn the approximate home value that you will be able to qualify for as well as get a good sense of how much of a down payment you should be saving.

You may be surprised to learn that when it comes to mortgages, there are many options available. And by doing business with a mortgage broker instead of a bank, not only can you get more competitive rates but you can also get the type of mortgage that best suits your needs.

To start the process of pre-qualifying for a mortgage to buy your next home, call Matrix Mortgage Global today at 1-800-429-0717.

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