Recently, the Canadian Mortgage and Housing Corporation (CMHC) has provided two updates regarding their multifamily financing programs that investors should take note of.

Firstly, the CMHC will be adopting a more prudent risk management approach when reviewing multifamily mortgage applications, effective immediately. This means that not all features of multi-unit mortgage loan insurance products will be available for every application, and additional mitigation measures may be applied. This change comes as the CMHC seeks to balance its risk in markets with elevated rent-up risk against the social outcomes provided.

Secondly, effective June 19, the CMHC will be increasing its multi-unit mortgage loan insurance premiums. This is a result of its annual pricing review and to reflect the new International Financial Reporting Standards 17 (IFRS 17). 

While premiums are generally included in the mortgage and won’t directly influence borrowers’ ability to qualify for a mortgage or the underwriting debt service ratios used to calculate loan amounts, the larger premium may result in higher actual mortgage payments for borrowers. This could lead to less cash flow after making mortgage payments.

As investors, it is important to understand the implications of these changes and take action now. Here are some key considerations for investors in the multifamily asset class:

Firstly, CMHC highly values affordability and social outcome and has provided a high degree of flexibility and prioritization for files with affordability. Therefore, for applicants who need extra flexibility or program features, having a higher number of points and including affordability as a social outcome may lead to increased consideration for all program features.

Secondly, investors should be conservative in their planning for loan approvals. Plans should be made for more conservative underwriting and not necessarily having all program features being available, especially if borrowers are not achieving full points in the program or having affordability as part of their social outcomes.

Lastly, investors should be aware of the impact of rising insurance premiums on their cash flow. While premiums are included in the mortgage, the larger premium may lead to higher actual mortgage payments, resulting in less cash flow after making mortgage payments.

In conclusion, the recent changes to the CMHC’s multifamily financing programs in Canada should be taken seriously by investors in the multifamily asset class. It is important to understand the implications of these changes and take action now to ensure that your investments are not negatively impacted.

It is also possible that there is an underlying objective here as to deter building owners from “flipping” properties.  With higher premiums, the up front costs impact profitability when a building owner tries to acquire, rehabilitate and sell in a short period of time.