James Loewen believes the government has catalyzed the very thing it is trying to prevent with the recent B-20 changes, and the irony isn’t lost on him.
Loewen says that most borrowers will be stuck in the private channel, and will have to walk away from their homes. The resulting supply surge in tandem with diminished demand—the result of a reduction in buying power, estimated to be around 20%—will bring the housing market crashing down.
“It’s ironic because the government purports that they’re trying to prevent an economic crash, people walking away from their houses, but if you can’t qualify under these guidelines, which, definitively more people can’t, there will be more people walking away and selling their house,” said Loewen, broker and owner of Loewen Group Mortgages.
He added that B lenders got hit particularly hard because borrowers now have to qualify 2% above the prime rate. However, most won’t and will be forced into the private channel—a traditionally temporal solution that could have no end in sight for many borrowers.
“They will be inciting the very thing they’re trying to avoid, which is a collapse,” said Loewen. “If I couldn’t qualify at TD or Scotia, I’d go to Home Trust or Equitable for a slightly higher rate than the best rate, but now I probably won’t qualify for that mortgage, so I‘ll have to go private. The risk private lenders are taking is much lower than even six months ago, and we can’t bundle up to 85% loan-to-value inside these government guidelines, so there might not be a solution at all for the client and they might be forced to sell.”
Regarding increased regulation, Loewen doesn’t think that the industry will be subjected to any more in 2018—but, he added, that could change depending on Q1 real estate numbers. For that reason, he hasn’t ruled out an interest rate hike, either.
“The next logical step is for the government to impose or impede on private lending, but they’ve already indirectly affected private lending guidelines,” said Loewen. “The B market lit up over the last two or three years, but that’s hard now, so the private market is lighting up. There is more demand for private lending but there will come a period of time when people realize they can’t afford private money anymore.”