If you’re looking to buy a rental property, you should know about the changes by the big banks. They were introduced a few weeks ago. Of course, you know that in order to be approved for a mortgage, your broker or bank will be looking at your debt-to-income ratio. This will tell them how much income you make, how much debt you have, and essentially, how capable you’ll be of paying back the mortgage loan. It’s changes to this ratio that now has many brokers, and anyone looking to buy an income property, upset.
“Scotia made a fairly big change to rental rules,” says Justin Blacklock of The Mortgage Group. “They used to let us do a 70 per cent offset; not it’s 50 per cent of the rent off the mortgage.”
That means that for every $1,000 of rental income borrowers expect to bring in, only $50 of that will be taken into consideration when lenders are deciding on mortgage approvals. And it used to be $70 for every $100 – a big difference, if your income is already tight to begin with.
“There are new regulations, rules and underwriting guidelines,” Ryan Kirwan of HQ Mortgages agreed. “Scotia changed their rules for rental properties – before you were able to offset more of the rental income and now you can only include 50 per cent of the rental property when trying to qualify for a mortgage.”
But, Kirwan also says that this is really nothing new to brokers who have been keeping up with the new lender guidelines. And he doesn’t see why everyone is so upset about Scotia finally joining the pack.
“They all do it now,” he says. “Scotia was just the last to make the changes.”
But the big question isn’t whether or not borrowers of income properties will be able to afford the mortgages for them now. It’s whether or not an independent lender will see the opportunity and start catering to this niche that needs rules that are a bit more relaxed.
“I’m frustrated by all the rule changes for clients,” Blacklock says. “Lenders are getting much stricter. There is an opportunity for a lender to corner the niche market for rental properties.”
He also admits, “It’s just a matter of adapting. Accept that the industry is changing. We have a way of romanticizing the past.”