Condo mortgage rules about to get tougher

The federal government’s efforts to get tough on borrowing are now focused on the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment, the National Post newspaper has learned.

Sources say rules now being discussed would add 100 per cent of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. Currently, only 50 per cent of the fee is considered. The move has the potential to squeeze thousands of consumers out of the market.

“I know for a fact they are talking about it,” said one source close to finance officials who asked not to be identified, about the proposal which is part of series of a new rules that the government is described as “seriously considering.”

It is almost a guarantee that the government will once again lower the maximum length of amortizations for a mortgage, down to 30 years from 35. Longer amortizations and lower monthly mortgage fees are making it easier for consumers to borrow more.

The Canadian Association of Accredited Mortgage Professionals says 30 per cent of new mortgages last year were for amortizations of 35 years, so a considerable percentage of Canadians are taking advantage of the current rules.

About three years ago, amidst a battle for customers between federal Crown agency Canada and Mortgage and Housing Corp and private mortgage default insurers, amortizations lengths rose almost overnight from 25 years to 40 years before Ottawa cracked down. “Going from 35 years to 30 does almost nothing,” said the source, adding that’s why the government is looking at the changes to condominium qualifications.

Ottawa is also still considering a far more controversial proposal to increase the minimum downpayment required to buy a home but it is unlikely to go from the current 5 per cent to 10 per cent, as some have speculated. A 6 per cent to 7 per cent range seems more likely, said the source.

In April, 2010 new mortgage rules went into affect that forced consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors, as opposed to people who use a home as principle residence, to have a 20 per cent down payment which mostly affected the condo industry.

The condominium proposal would have an immediate impact because the average condominium fee on an existing home is 55¢ a square foot in Toronto, according to research firm Urbanation Inc. which says the average condominium apartment in Toronto is 900 square feet.

Currently only half that approximate $500 in monthly condo fees counts toward monthly expenses for qualifying purposes. To qualify for a mortgage only 32 per cent of gross income can go towards housing, which also includes mortgage payments including principle and interest, taxes and utilities.

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