Owning a home is going to get even harder for young Canadians

Young Canadians could write up a long list of reasons why they feel homeownership is out of reach. Lack of income, not enough saved for a down payment, and locations that add stress to their work commute are often top of mind, but two new factors have arrived on the scene: more expensive borrowing rates and new mortgage rules.

The availability of historically cheap credit has, to date, led more Canadians to take out loans to buy homes, feeling that it’s a safe investment. This practice has led to increased housing prices in Canada with rising demand. Many call it a “bubble” and have for years predicted it’ll burst like Canada Day fireworks, except it won’t look quite as pretty. If you predict an inevitability long enough, it’s eventually bound to come and that time may be on hand.

The feverish borrowing landscape could be slowing as costs have started to rise.

On Tuesday, RBC raised its rates on some fixed residential mortgage products. This move followed TD increasing its prime rate for variable mortgages earlier in November, then raising its fixed rates for new homebuyers as well.

“We regularly review our rates and adjust them based on a number of factors, including the cost that TD pays to fund mortgages,” TD spokesperson Cheryl Ficker told VICE.

What’s driving rates upward can include Canada’s federal government announcing rules last month that require greater accountability to get a mortgage, and the unpredictability of Donald Trump’s US presidency, which currently suggests higher interest rates down south in the near future.

“Increasing our rates is not a decision we take lightly,” Ficker said. “We consider the impact on our customers before proceeding with any rate change.”

It’s widely expected that other banks will follow TD and RBC’s lead, which may bring fewer home buyers to the market, potentially dropping property prices. But even if prices come down, it doesn’t necessarily mean young people have a great shot at buying a home.

The new Government of Canada mortgage rules make it tougher to get a loan from the banks without a significant income. The borrower, when tested against the Bank of Canada rate, can’t carry home-related debts (mortgage, maintenance/utilities, taxes) in excess of 39 percent of their income, or a total debt service ratio (housing plus all other payments) of 44 percent of that same income. This is called a “stress test.” For millennials who may be servicing student loan and credit card debts while working for lower wages, being under that threshold is a tall task.

The market has gotten tougher “from a qualifying standpoint,” Morgan Vaughan, a Toronto-based licensed mortgage broker of 14 years told VICE. Vaughan has seen rates fluctuate, but generally remain low, and he doesn’t expect drastic increases.

“I don’t know if we’ll see two or three point increases, but a quarter point here and there, [banks] tend to do that,” Vaughan said. He doesn’t feel Canada is in a worrisome bubble, and maintains the US housing crash that is often cited to warn Canadians of impending real estate doom, was due to “mortgage underwriting practices” that are very different in the two countries, with Canada adhering to tighter restrictions.

Sadly for young, would-be homebuyers if Vaughan is correct in his optimism for the enduring housing industry, it also means prices aren’t coming down anytime soon.

“I think it would be nice to see more buyers be able to get into the market, but I don’t think a lot of these (mortgage) changes or even the increase in rates is going to do much of that.”

Prior to the new rules, a $60,000 salary seemed to be where young Canadians would want to land in order to become a homeowner, according to the 2011 National Household Survey. Those homes where the main earner was under 35 and made $60,000 to $79,999 had a 58.1 percent ownership rate. Depending on the region and desired home, entering the low end of this income bracket may no longer be enough to get a mortgage.

The message for younger buyers according to Vaughan is that “you’ll have to either come up with more down payment or buy a cheaper place, essentially.”

More than two-thirds—69 percent—of Canadian households own their home as per the latest data. This number can put immense social pressure on young people to buy. Given the new realities however, perhaps they ought to resist while saving as much as they can, and enter the market only when there’s a sweet spot between a home they want, a reasonable price and most importantly, borrowing conditions they can afford. For these points to align, vast majority of people under 35 will need a great deal of patience. Vaughan cautions not to wait too long.

“There’s people who have been waiting for the market to go down for five years and they’ve lost five years of potential growth,” the broker warned. “If people are buying something to be their home and to live in—not for speculation— then it is a good time to buy.”

Canada’s large home ownership rates complement Vaughan’s optimistic outlook and millions do become homebuyers over time, but new developments will likely ensure that there is now a longer waiting period for millennials to get their own set of keys.

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