Intervention by the federal Office of the Superintendent of Financial Institutions into how federally regulated banks dole out debt has meant a much tougher environment for residential investors.
OSFI lending "guidelines" mean, for example, that residential property buyers must qualify at the five-year posted mortgage rate (currently 5.24 per cent) even if they are taking a lower-cost, shorter-term loan.
Also, "stated income" borrowers - usually the self-employed - are finding it much harder to qualify for loans, according to Kyle Green, a mortgage broker with Mortgage Alliance Meridien Mortgage Services Inc., Vancouver. Green will speak this Saturday, Feb. 23 at the Jurock Land Rush conference in Vancouver.
" We have encountered more weird rules that we have been told is due to government audits," Kyle said.
Some lenders, he said, are using the limit in a borrowers line of credit, not the balance, to qualify them. "To give some perspective, a borrower with an empty $600,000 Line of Credit would have a $3,572 monthly payment to service, which would require an annual income of about $115,000."
The usual solution, he said, is for the applicant to close the line of credit if it is not being used.
As well, many lenders are asking for rental leases be place prior to funding the mortgage for a rental investment. "This can be a challenge when making a purchase," Green said. "Some lenders will either use no rental income if there is no lease, or will only finance 65 per cent."
Lenders are also looking more closely at the condition of residential property. "Any hints on the MLS, in the strata minutes or appraisal of a sub-par property, and the lender are out. " Green said, "Anything below average will likely not get financed by a major bank."
This has all resulted in increased paper work for residential investors seeking funds, he added.
"Some of our clients have to provide 200 or more pages of documents when you add up two years of tax returns, company incorporation documents, financial statements, leases for each property, mortgage statements and property tax notices."
