CMHC tightens lending standards, making homes less affordable
Effective July 1, 2020, it will be more difficult to buy a home in Canada if you’re a first-time buyer.
Canada Mortgage and Housing (CMHC) is tightening lending standards:
- maximum gross debt service (GDS) ratio drops to 35 from 39;
- maximum total debt service (TDS) ratio drops to 42 from 44;
- minimum credit score rises from to 680 from 600; and
- non-traditional sources of down payment that increase indebtedness are no longer treated as equity for insurance purposes.
CMHC changed its underwriting policies because “COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO.
The Canadian Real Estate Association (CREA) believes these changes will make housing less affordable for first-time buyers who may be sidelined, trying to save a larger downpayment.
How will this affect first-time buyers?
Monthly payments for Gross Debt Service
|Benchmark price||Principal and interest||Taxes||Heat and condo fee||Total monthly payment|
Comparison of gross annual income under GDS ratio change
|Former GDS ratio
||Gross annual income||New GDS ratio||Gross annual income||Income difference|
Gross Debt Service ratio
Principal + interest + taxes + heat / gross annual income.
Total Debt Service ratio
Principal + interest + taxes + heat + other debt obligations / gross annual income.
CREA has and will continue to advocate on behalf of home buyers, property owners and communities to promote policies supporting a vibrant and sustainable housing sector.
More information from CMHC.