With the expectation that first-time homebuyers will be shuttered out of the housing market, thereby reducing the number of people to whom seniors can sell their homes, reverse mortgages might begin surging next year.
OSFI’s new lending rules are widely expected to affect first-time buyers more than any other buying cohort, and the ripple effect it can have through the marketplace could result in seniors being stuck in their homes, rather than pulling out equity and retiring.
Yvonne Ziomecki, the executive vice president of marketing and sales at HomEquity Bank, says the new borrowing rules coming into effect on January 1 will give the reverse mortgage market an indirect boost.
“If there are less people qualifying for conventional mortgages, therefore, there are less buyers in the marketplace, then our clients 55 years and older will have fewer buyers to sell to,” she said. “There are [younger] buyers in the market who may not be able to qualify under the new rules. They may be looking to their family for a larger down payment so that they look better to lenders.”
This, too, could be a boon for the reverse mortgage industry. It’s no secret that many millennial buyers rely on the bank of mom and dad to help them afford their down payments, and with home value appreciation skyrocketing in the Vancouver and Toronto areas, many homeowners are dipping into their homes’ equity to help their kids get a start.
Ziomecki says that we’ll see more of that with the new rules.
“It’s not uncommon to get a Toronto or Greater Vancouver Area family who lives in a $1mln-plus home and take out equity and give it to either adult children or grandchildren,” said Ziomecki. “We’re also seeing the bank of grandma and grandpa, who want to see the young ones enjoy their lifestyles.
“With the new rules coming in, we’re going to see more and more of that. It’s becoming more restrictive for younger buyers to get into the market, and considering older generations are sitting on so much equity in their homes, it’s a smart way to unlock equity and help the younger ones.”
But Shane Bruce, founder of the ACME Group of Companies, is doubtful that seniors will be insulated from any harmful effects the OSFI rule changes might have on the housing market. While first-time buyers are expected to struggle with the new underwriting rules, Bruce expects there to be a domino effect in the housing market.
If anybody loses buying power, sellers will have a harder time unloading their homes, he says—and it won’t matter whether or not they’re seniors.
“Certainly for first-time buyer will struggle, but what does it do to all these people who are homeowners?” said Bruce. “The government talks about how real estate equity is a major component of seniors’ retirements, so when you’re tapping their major asset and reducing how much it’s increasing in value, then I think they do get affected. They’re in their golden years and their home is not worth as much as they expected it to be, and it will underfund their retirement.”