Mortgage Rules to Increase Rent in 2013
Just this morning we brought you some of the biggest changes the Canadian mortgage market is likely to experience in the upcoming year. But there’s one that will have such an impact on everyone – especially if you still haven’t found your dream home – that we thought it deserved an entire post dedicated to it. And that’s the fact that the mortgage rules instated last year are going to have a direct impact on higher rental rates this year.
The mortgage rules, particularly the newest ones that were put into effect during July 2012, are going to make it much harder for people to buy a home. First-time buyers will find it very difficult to rely on CMHC mortgage insurance, as they’ll now only have 25 years to pay off their home loan. This will drastically increase the monthly payment of any mortgage and will even price many people out of the market.
These first-time buyers, unable to buy a home, will instead have to turn to the rental market, and there will be more of them doing so. Landlords know this and so, they see an opportunity. If their rental unit isn’t yet filled but they expect it to be soon with so many unable to buy, they can place pretty well any rental rate on it that they’d like. And, seeing the opportunity, most landlords will probably place those rates very high on the rental chart.
And while there’s little mention of the new OSFI rules that went into effect on October 31, 2012, these will also have a huge impact on the mortgage market. These rules require that borrowers have the proper income documentation, whether it’s from their annual tax return, from ROEs, or through paystubs and letters of employment. This makes it tougher for yet another group – the self-employed, to get a mortgage.
With even more people out on the market and unable to buy, guess what that means? That those landlords have even more people competing for their rental space – and that they can place an outrageously high rental rate on it! Yep, this one’s going to mean that higher rents are also out on the market.
But those landlords could be in a tight position themselves. After all, this group too, will find it harder to get a mortgage whether it’s to finance repairs on their property or to take advantage of a second mortgage to help finance another. With their profits being capped by lenders (in the form of not buying and renting out another property,) these property investors will need to turn elsewhere to recoup their profits. And guess how they’ll do it? By raising the rents on the properties they already own.
Of course, higher rental rates only effect you if you’re currently looking for a place to live, as it’s these units that landlords are free to place a rent of any amount on. If you’re already in a rental home though, there are limits to how much landlords can increase your rent. In Ontario, the percentage of allowable increase in 2013 is only 2.5 per cent.