By Jared Dreyer, President of Dreyer Group Mortgages
We are undoubtedly in one of the most active real estate markets Canada has ever seen. In my 20 years as a mortgage financing professional based in our South Surrey office, the only comparable, sustained seller’s market like this one, many of you will remember, was in 2016.
I’ve chatted with many fellow Mortgage Brokers and REALTORS® who worked during that last hectic market, and we’re all in agreement that what we’ve been experiencing in the last few months is a whole other level. Crazy, isn’t it?
It’s important that we, as real estate professionals work together – note that Realtors and Mortgage Brokers will potentially be under the same BC Financial Services Authority pending proposed legislative amendments – in order to achieve our common goal which is to help our mutual clients realize their dream of home ownership.
Mortgage Brokers understand what you’re up against. Tremendous demand fueled in part by the pandemic combined with a lack of supply. We’re all operating above capacity: Realtors, mortgage brokers, appraisers, lawyers, home inspectors, lenders and so on. In this context, it’s important for all of us to set realistic expectations and advise our clients appropriately.
Realtors should not be expecting firm and unconditional mortgage approvals quickly
For example, mortgage approvals are taking two to four times longer to secure than in a normal, balanced market. At this time, Realtors should not be expecting firm and unconditional mortgage approvals to be achieved in a couple of days. Many lenders are currently taking three to seven business days to thoroughly review a client’s documentation. It can take even longer if additional information is required, which is not uncommon right now.
To give you an example, upon receipt of an accepted offer, it is normal practice for us to submit a standard mortgage approval application to a lender. This includes the credit application, credit report, income documents, down payment documents, and property information. A week later, the lender could ask for additional documents. It could be tax returns, proof of gift letter, rental history, and so on depending on the individual file.
We gather the additional documents, submit them and wait another few business days. As you can see, these timelines are not conducive to a contract of purchase and sale with a couple of days for subjects and two weeks for completion.
These delays have led many clients to enter subject free contracts or to remove their subjects without actually having their financing conditions in place. We understand that these risks may be necessary to secure an offer, but it is not without danger and we do not recommend this to any clients.
A reminder to your clients that there are numerous risks to a subject free contract
We encourage each and every client to be fully vetted by a licensed and independent Mortgage Broker prior to shopping for a home and to speak with their real estate professional about the risks of signing a legally binding contract without assurances in place. Questions to remind your clients to ask themselves are: What if my mortgage application is declined? Do I have a back-up plan? Will if I have difficulty getting home insurance? Do I have enough savings for repairs if I pass on the home inspection? What happens if I signed a subject free contract and now I want out?
Adding to the fire is the proposed increase to the existing mortgage stress test, which if approved, will be in place June 1st and will make it harder to borrow. The qualifying rate will likely change from 4.79 per cent to 5.25 per cent for conventional, uninsured mortgages (with a 20 per cent or more down payment), which equates to a 4 to 5 per cent decrease in purchasing power.
Not unexpected, we are already seeing an influx of pre-approval applications as buyers try to ‘beat the clock’ ahead of this expected rule change from the Office of the Superintendent of Financial Institutions. We also may see additional changes to Canadian lending guidelines, but we have no concrete evidence of this just yet.
We believe a new stress test will take some would-be buyers out of the market or simply bump them down the price ladder. The majority, however, will continue to pursue their purchasing plans leaving the current frenetic market potentially relatively unchanged.
Given the impact that the pandemic has had on the real estate market and the fact that it’s not (unfortunately) going away any time soon, my belief is that it’s going to take more than one measure to cool the market.
In the meantime, let’s do everything we can, as professionals, to work together to guide and protect our clients and fellow neighbours during these unprecedented times in the marketplace.
Jared Dreyer is an Accredited Mortgage Professional and the President of Dreyer Group Mortgages, one of the top 10 mortgage brokers in Canada. The Dreyer Group team funds mortgages throughout Vancouver BC, including White Rock, South Surrey, Langley, North and West Vancouver, Richmond, Burnaby, Coquitlam. In 2017 Jared Dreyer received the CMA Lifetime Achievement Award for his service and dedication to the mortgage industry.