Talking Shop: Joanna & Jason Lang, Outline Financial

With over 60 years of combined experience in banking, financial services and home financing advice, Outline Financial has uniquely positioned themselves to help Torontonians achieve their real estate financing goals.

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Jason Lang, Outline Financial.
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Joanna Lang, Outline Financial.

Captained by Joanna and Jason Lang — two of the GTA’s premier mortgage advisors — the Outline team understands that buying a home or investment property can be one of the most significant decisions of anybody’s life. Which means they constantly strive to ensure their clients’ priorities and circumstances always drive the solution.

Take Joanna. Consistently ranked within the top percentile of her industry — and the recipient of numerous awards — she brings to the table over 15 years of banking and real estate financing experience, founded by an uncanny ability to distill complex concepts and situations into manageable and actionable items for her clients.

For his part, Jason also wields 15 years of expertise in financial services, perhaps reflected best in his dedication to customer satisfaction and technical expertise. In fact, prior to joining the real estate industry, Jason built his career within the insurance industry, most recently serving as Canadian CFO for a multinational insurance organization.

So, suffice to say, when we recently caught up with Jason and Joanna about interest rates, regulatory changes, lending guidelines and the like — we knew we were in the right hands.

Tell me, how does the average Canadian go about understanding — and possibly even predicting — interest rates?

While your mortgage provider is always a great place to start, wouldn’t it be great to get a sense for which way interest rates are heading, so you can stay on top of things? While it is not an exact science, there are definitely some great tools that can help you with this process.

For starters, pay attention to the Bank of Canada’s overnight/target rate announcements. These announcements occur eight times per year, and almost always provide an immediate flow through impact to Bank’s prime rate, which, in turn, affects variable interest rate mortgages, secured loans and anything else that might be tied to the prime rate.

And then?

Pay attention to the Bank of Canada’s 5-year bond yields. Unlike the immediate impact of a change in overnight/target rate, in a general sense, the bond yields tracks expectations of how the overnight/target rate will trend over time.

Can you give us an example?

Sure! If the general expectation is further increases in the overnight rate (i.e., the economy heating up), the bond yields will increase. This has a direct impact on 5-year fixed mortgage rates as they are usually priced around 150 basis point — or 1.5% — above the 5-year bond yields. Again, this is not an exact science and only one small portion of the drivers, but it does give you a sense whether current mortgage rates are under or overpriced, and whether a increase or decrease is likely.

Are more regulatory changes on the way?

On July 7th, the Office of the Superintendent of Financial Institutions (OSFI) announced potential policy changes that were open for industry feedback until August 17th. On October 17th, OSFI published the final version of Guideline B-20 − Residential Mortgage Underwriting Practices and Procedures, which will come into effect on January 1, 2018 and applies to all federally regulated financial institutions. These new regulations will make it tougher for Canadians to qualify for uninsured loans which will affect consumers with down payments of 20% or more, making this new stress test the latest in a series of policy changes and rules aimed at ensuring Canadians can afford their homes even if interest rates rise. While it is clear this change will have a significant impact on affordability, the argument for this change is that it will help stabilize the Canadian housing market over the long term. (Read the official news release from OSFI here.)

Overall, the past five years have seen numerous changes — many of these are cumulative, so if someone got their mortgage then and are coming up for renewal now, they may be facing a completely different lending environment.

How might this impact Canadians across the country? 

Well, one thing to remember is that any change that makes it more difficult to qualify now, will offer opportunities for the government to unwind those changes in the future if they ever need to stimulate the real estate market.

The changes to amortization over the years, combined with the change to benchmark qualification, has resulted in a nearly 40% erosion in affordability. Add on top of that more stringent lending guidelines, paperwork requirements, limited refinancing loan-to-value maximums and a host of other changes, and it is no wonder many people can often feel frustrated.

Take this latest round of proposed changes, which will require anyone with more than a 20% down payment to qualify based on the contract rate, plus 200 basis points. So, if the current rate is 3%, they would need to demonstrate they could afford payments based on a mortgage at 5%. This could potentially reduce the maximum purchase price by as much as 20%!

Not everyone needs this much room, but if someone has a solid job with significant upward potential, it may be worth stretching to get into the slightly more expensive house that will save them long-term in/out costs if they ever wanted to buy a bigger place.

Finally, given the tightening of lending guidelines, what kind of impact would you say is being felt in the market?

For one, a waterfall effect on properties over the past few years, where affordability caused people to move from detached, to semi, to townhomes. Then, a ‘drive until you can afford it’ 905 market rush. And, finally, condos. This can be evidenced by tracking the average price increases in each segment.

There is also quite a fascinating thing happening right now, where detached homes that had prices growing at 20% plus per year have dropped down to the single digits after the April Fair Housing announcement… but condos have continued picking up momentum with prices growing at 20%+ year over year. The condo new build market is also eye-popping, with a record 92% plus of all units already sold across the pre-build, under-construction and pre-registration phases.

Combine that with a condo rental vacancy rate in the 1% to 2% range, and you can see why conditions are so tight!