Brantford Real Estate and Mortgage-New Rates
I have had questions from my clients about Brantford real estate market. Today I’m explaining: Brantford Real Estate and Mortgage-New Rates.
You’ll also learn more about the process of mortgage preapproval for the first-time homebuyer and what mortgage qualifying rate means.
First, a brief explanation of the process of mortgage approval and qualifying for a new mortgage.
Mortgage pre-approval or pre-authorization is a process where applicants permit lenders to look at their finances to determine the maximum amount to lend them for the purchase of a house and at what interest rate.
New Mortgage Qualifying Rate/ Brantford Real Estate Market
On June 1st, 2021, the qualifying rate for a new mortgage became effective.
The Office of the Superintendent of Financial Institutions Office (OSFI) approved the benchmark rate for qualifying new mortgages.
The lender’s interest rate plus 2% – whichever is higher.
- A lender offers 3.99% interest, add (OSFI) approved 2% interest to make 5.99%. This is higher than 5.25%; then the higher rate is applied.
- If you are offered 2.99% and the same 2% is added
- It brings your qualifying rate to 4.99%, which is lower than the qualifying benchmark. So then the qualifying rate of 5.25% is automatically applied.
- To qualify for a new mortgage loan from banking institutions, applicants must pass the test.
- The rate is used to assess your assets (what you own), your income and your level of debt.
- This rate only applies to Banks, not credit unions or other lenders. So shopping around for the best rate may be beneficial.
Brantford real estate market benefited from the recent house buying frenzy. However, like everywhere else, the new rate reduced the buyer’s buying power.
It’s important to know Brantford Real Estate and Mortgage-New Rates.
The Impact on Brantford Real Estate Market
First-time Home Buyers and Sellers?
The recent qualifying rate for a new mortgage affects both buyers and sellers in a yin-yang fashion.
For instance, if you were pre-approved for 600k under the previous rate, the pre-approval is reduced by about 5% at the current rate.
This, in turn, decreases the number of buyers interested in a seller’s 600k property.
First-time homebuyers in the Brantford real estate market might hesitate to go back to the buying market because of their loss of buying power and might need to reevaluation their options before going forward at the same time, they might want to wait for the market to cool off before they come back. In which case, this could tamp down the frenzy and cool the market slightly.
Who Does it Affect in Brantford Real Estate Market?
The qualifying rate for new mortgages, including first-time homebuyers, affects everyone buying a new home.
It also affects existing owners looking to:
- switch lenders, or
- get a home equity line of credit
Why The Change?
Home prices skyrocketed at the beginning of the pandemic in 2020. As a result, the housing market recorded high home sales.
Brantford homes sold as swiftly as they were listed and for more than the listing prices. Agents, including myself, lost out on several bidding wars as the sale prices slowly edge out of clients’ budgets.
First-time buyers were left fatigued and bewildered.
New Mortgage Qualifying Rate During COVID-19 Pandemic
First-time home buyers and even investors anticipated the housing market cool off at the beginning of the pandemic, and there was a slight dip.
But, the quick rebound was whiplash for everyone, including myself as the market became competitive very quickly
Before the pandemic, people worked at the office and could spend less time at home with outdoor activities.
But with the pandemic lockdowns and stay-home orders, every aspect of life is spent within the confines of the home.
As a result, new and first-time buyers were encouraged to enter the housing market.
First-time buyers and uninsured buyers’ new homes search criteria now include large space to create a home office, childrens’ classroom, home gym, outdoor space and living areas.
Home prices in Brantford have steadily increased during the pandemic. This increase is due to the influx of new buyers from Toronto, Peel Region, and Halton Region.
Brantford has become a destination location for new home search because of its proximity to large cities, home sizes with yard space, natural spaces and most of all, reasonably homes pricing
Unfortunately, first-time homebuyers in Brantford had the added pressure of buyers with bigger pockets from the big city.
The potential sellers’ fear of buying in the city after selling their house also added to the price increase.
Sadly, this increase leaves new home buyers out of the process and residents priced out of their own city.
The new Qualifying rate is expected, by the policymakers, to have a cooling effect on the market so that homeownership is within reach of all Canadians.
This is especially important during the recovery effort from the pandemic.
And this is supposed to stabilize the Canadian economy.
I think the stress test is a brief pause for buyers to adjust, get comfortable and come back to the market.
The reason I came to this speculative conclusion is simple;
The stress test is not deep enough to discourage buyers, the interest rate is still low, new builds have come to almost a screeching halt due to lumber scarcity and the rental market is going up.
The 2017 stress test, when compared to the current test, was significant, which made the cooling off effective and lasting.
The new 2021 stress test will probably have more impact if you are a new home buyer.
Because your buying power is reduced and the down payment remains the same.