The article begins by looking at the current market climate, where homeowners continue to borrow and spend more money than ever before. This has created a far more competitive housing market and increase mortgage rates across the board, which act as a deterrent for many potential buyers. To combat this, lenders have become more creative with their mortgage products, such as offering shorter-term mortgages or adjustable rate mortgages, as a way to attract customers who cannot afford or do not want to take on longer-term mortgages.
The article then moves onto changes to mortgage rules, in particular the new qualifying rate (QR) introduced by the Office of the Superintendent of Financial Institutions (OSFI). The QR measures mortgage applicants' ability to cover their payments if interest rates start to rise. It is now mandatory for lenders to ensure that borrowers can repay their loan based on this rate; lenders must also stress test mortgages to ensure they are in line with the QR. This change has resulted in more stringent borrowing criteria; this may particularly affect those with lower incomes or lower credit scores.
The article then looks at emerging technology in the mortgage sector, such as automated valuation models (AVMs) which are used to quickly assess an applicant’s property value and provide lenders with an estimate of market values. It is argued that the accuracy of these AVMs could be improved by incorporating detailed data from local real estate markets, as well as by expanding their use to areas beyond just residential mortgages.
Finally, the article examines the implications of the changes discussed on the industry. It argues that lenders must be prepared to make faster decisions on mortgage applications and to respond to customer inquiries in a timely manner. Furthermore, brokers must be more creative and flexible in their strategies to survive in this current climate; this may involve diversifying their offerings or leveraging on technology to provide better services to their clients.
In sum, current mortgage market conditions have caused a shift in the industry, where lenders and brokers alike must remain agile and creative to survive. In order to do so, lenders must accommodate the changes brought about by new regulations and technology, while brokers must strive to diversify their offerings and take advantage of available technology. By implementing these strategies, it is expected that the industry will be able to weather the storm brought about by the current market climate.
This article was contributed on Dec 28, 2023