The rules surrounding the income from rental units considered in home loan applications submitted to the Canada Mortgage and Housing Corporation are changing. The agency announced Monday that from September 28 it will allow 100 per cent of the rental income from a unit to be considered for new loan applications submitted to it for mortgage insurance. That means that a secondary rentals suite’s income, minus costs including property taxes, will boost the size of loan that buyers can secure. Qualifying units must have sustainable income, proven by two years of rental rent payments. These payments will be averaged to assess the unit’s income. Applicants will also need a credit rating of at least 680. Properties with more than a single rental unit will have slightly different rules and this change is most positive for homeowners with one rental unit.

One big bank believes the housing market will continue to be a driving force for the Canadian economy, even despite predicted cooling in 2016.

 “The housing sector is likely to remain a bright spot in 2015, but can be expected to cool next year as affordability continues to erode on the back of national home price growth that is outpacing income growth,” TD Economics’ Weekly Bottom Line, released late last week states.

 The bank also argued that the record-low rate environment has finally bottomed out.

 “With 5-year Government of Canada bond yields at around 80 bps, it’s hard to imagine rates going much lower,” the report argues.

 And some brokers expect rates to remain stable until they are eventually raised.

 “It’s really hard to say because we use a wide array of lenders, but I really don’t see rates pushing down,” David Jeffrey of Dominion Lending Centres Edge Financial told MortgageBrokerNews.ca. “Rates are pretty low and promos may pop up here and there every once in a while.”

 For the time being, however, industry players can expect an influx of clients who may have been waiting in the wings, biding their time before striking.

 “Based on historical experience, mortgage rate changes of this magnitude can boost demand for housing by 10 per cent to 15 per cent over a 6-month period,” TD said in a prior report, released just after the Bank of Canada’s most recent rate cut Since existing home sales are up only 6 per cent year-to-date as of June, the past decline in mortgage rates are likely to feed through to demand for several more months.”

 TD also considered a pent-up housing demand and a “significant” pool of buyers readying to jump into the current low-rate environment.

Brokers are frustrated by the increase in rate shoppers and the number of clients being given incorrect information about how the Bank of Canada rate cut affects rates.

“There is a lot of confusion among clients between fixed and variable rates; clients are wondering what affect the drop will have on fixed rates,” Michael Marini, a Toronto-based broker with Dominion Lending Centres told MortgageBrokerNews.ca. “More rate shopping is going on right now as a result.”

According to Marini, many clients aren’t aware that the Bank of Canada overnight rate and fixed mortgage rates aren’t correlated, despite what friends and family may be telling them.

He’s had to explain that it is only variable rates that are affected.

“I do a virtual meeting and go through the bond yield charts and how they affect fixed rates,” Marini said.

Many brokers likely experienced an increase in the number of inquiries from current clients wondering what sort of refinance they can expect following the Bank of Canada’s decision to slash its overnight rate target to ½ per cent.

But clients may be surprised by their options.

“Clients are calling and asking if fixed rates are down; they think the Bank of Canada rate drop affects all mortgages,” Michael Tulchenetskiy of Northwood Mortgage told MortgageBrokerNews.ca. “When they call I have to explain it to them but clients are shopping around more.”

“Clients are very rate-focused right now and looking to compare rates in the market.”

Still, analysts suggest there will be some knock-on effect for the bond market and yields, which should eventually influence fixed rates.

Rumblings of further mortgage tightening are already frustrating brokers, who argue they will unfairly affect the wrong type of buyer.

“We’ve already seen the impact of the most recent changes and young professionals are really struggling to get into the market,” Dianne Smith of Invis told MortgageBrokerNews.ca. “The housing and mortgage business is really dependent on first-time buyers and they would be the most affected.”

According to the Financial Post, the federal government is looking at ways to cool the housing market and is considering an increase to the minimum down payment requirement.

“They are definitely looking into this but it doesn’t mean that they will do it,” an anonymous source told the Post.

Another source confirmed the government is considering it, while a Department of Finance source denied that Ottawa is considering raising the minimum down payment from five per cent.

But would the move make sense? The economy needs the stimulation that a rate cut provides, with the government, say analysts, unwilling to stimulate the economy with the more-usual infrastructure spending favoured by past regimes.

The talk of further restrictions will certainly ramp up in the wake of the Bank of Canada lowering the target for its overnight rate to ½ per cent and buyers take advantage of record-low rates.

Still, brokers argue any move to hike minimum down payments will not rein in the ever-increasing housing prices because they will affect first-time buyers; buyers who aren’t known to purchase the million dollar homes that are driving up the average housing price in Canada.

“I can’t see (the government increasing the minimum down payment) as fair; there has got to be a better way,” Smith said. “I just don’t think it’s fair to punish the market segment that is so critical to the housing industry.”

Following yesterday’s decision by the Bank of Canada to cut interest rates to 0.5 per cent some major mortgage lenders have reduced their rates but as predicted they have stopped short of the full 25 basis points. Toronto-Dominion Bank was the first to react, just 12 minutes after the BoC announcement, but it jumped too soon, initially cutting its prime rate by 10 basis points (0.10 per cent) to 2.75 per cent. However as other lenders opted for a cut of 15 basis points (0.15 per cent) TD cut again to match them. Scotiabank, RBC, CIBC and BMO have all announced the same cut to 2.70 per cent effective today. TD’s rate will be behind the others in the Big Five for one day as the initial reduction takes effect Thursday but the second cut comes in Friday.

The Bank of Canada has lowered its overnight rate to 1/2 per cent.

“The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment,” the central bank said in a statement. “Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.”

Prior to the decision economists were split on what move the central bank would make, with 16 of 29 economists polled by Bloomberg forecasting the central bank would slash the overnight rate by a quarter point to 0.5 per cent.

The market was ripe with speculation building up to the announcement, with analysts suggesting a rate drop would have little economic impact because rates were already extremely low.

Brokers suggested a slight lowering of rates would have little effect, except to perhaps attract stragglers to the enticing low rate environment – assuming, of course, that lenders follow the Bank of Canada’s lead.

The Bank of Canada expects real GDP to grow by just over one per cent this year and about 2 ½ per cent in 2016.

“The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities,” the Bank said. “Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.”

The economy is not performing at the pace the Bank of Canada hoped it would, which could lead to further rate cuts, according to one leading economist.

“The Bank of Canada meets next week and is faced with a troubling reality – output has fallen for four consecutive months, business confidence and capital spending plans are down and the trade deficit is at its second-largest level on record. Contrary to the Bank’s expectation, non-oil exports have not offset the decline in oil exports despite the sharp decline in the Canadian dollar,” Dr. Sherry Cooper, chief economist for Dominion Lending Centres wrote in her latest economic report. “That may well lead Stephen Poloz to cut Canadian overnight rates on July 15 for the second time this year.”

The Canadian economy is being outperformed by the U.S.’s according to Cooper, due to continued trouble in the energy sector. OPEC, meanwhile, is predicting a more balanced market in 2016 – but short-term price challenges are expected to prevail.

And the Canadian government recently released its jobs data report, which doesn’t bode well for the economy. Employment fell by 6,400, marked by the largest decline in part-time work in over four years.

Still, Cooper believes Stephen Poloz is in a difficult position.

“(Poloz) is between the proverbial rock and a hard place. If he does cut rates, he will be harshly criticized for contributing to a further rise in household debt and to feeding a housing bubble in Vancouver and Toronto,” Cooper wrote. “If he doesn’t cut rates, he will take heat for his Pollyanna-like assertion that the economy is going to bounce back any time now.”

The overnight rate currently sits at 0.75 per cent. The Bank of Canada will make its next rate announcement this Wednesday, July 15.

All eyes are on Bank of Canada governor Stephen Poloz this week as those in the mortgage business await this Wednesday’s decision in interest rates. Analysts are not united but there are plenty who are calling for a cut in interest rates to give a shot in the arm to the economy, especially the key export market. The concern of economists, the government, and the real estate sector is that a cut could lead to further risk of a bubble in the Toronto and Vancouver housing markets, and potentially create additional over-heating elsewhere. Making a call on what the BoC’s decision might be has been made harder by mixed economic data and the continued ebbs and flows of the oil prices.

Some economists may be calling for a recession but the federal finance minister has once again dismissed the assessment saying it’s too early to make that call. Joe Oliver spoke Tuesday at a meeting between Canadian and Australian delegates to discuss a mutual trade deal. He said that with the US economy growing and new investment in Canadian infrastructure there are reasons to be optimistic but he noted that external factors mean that Canada should continue with its current policies.

That could be taken as a sign that there will not be a cut in interest rates when the Bank of Canada meets next week despite the reports from Bank of America and TD Bank suggesting recession. Meanwhile former finance minister Paul Martin told the Star Phoenix: “We’re going to find out if we’re in one … as soon as the next quarter’s results are out. But if you look at the projections, they will tell you we are in a recession.”

The recent events in Greece have created an unprecedented situation and one which is causing ripples throughout the world’s economies. It has meant a surge in speculation by analysts about whether the bank of Canada will take a pre-emptive strike against potential weakness emanating from the Eurozone. However the talk of an interest rate cut was already rife with some economists suggesting that it could happen as soon as next Wednesday when the BoC meets. Although there are some parts of the economy that would benefit from a rate cut the bank will be mindful of balancing growth with over-fuelling the housing market. Derek Holt of Scotia Economists believes that there won’t be a cut as it would “risk inflaming housing imbalances” while Douglas Porter of BMO says that Stephen Poloz may see that as a risk worth taking.