The product has helped borrowers navigate a complex rate environment, says commercial specialist
It’s been as tumultuous a market in the commercial sector this year as in other areas of the mortgage industry – but the introduction of a new Canada Mortgage and Housing Corporation (CMHC) insurance product appears to have found favour among mortgage professionals in the space.
The national housing agency’s MLI Select program (APH Select in Quebec), which provides incentives including longer amortization periods and lower premiums based on specific commitments made by multi-unit rental builders, is a “really interesting” product that helps to minimize the impact of interest rate hikes and a challenging borrowing climate, according to a prominent commercial mortgage specialist.
“For those buildings that qualify, it’s a really great tool to use – especially in such a difficult market when it comes to the interest rates,” Stephanie Kowalew (pictured top), founder of Quebec-based Effet Papillon Financement, told Canadian Mortgage Professional.
“It allows up to 50-year amortizations for the buildings that qualify, but even for refinance of existing properties, it’s really interesting. They came in with the right products at the right time – it helps to minimize the impact of the interest rates.”
The product, unveiled by CMHC in March, offers incentives for new construction and existing properties based on how borrowers meet affordability, accessibility and energy efficiency criteria, using a points-based system.
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“The more committed you are to social and environmental outcomes, the better the incentives,” CMHC said. “You can choose to focus on a single area like affordability or combine commitments to increase your points and incentives.”
The program applies to standard rental housing, single-room occupancy (SRO) units, supportive housing and retirement homes, with student housing projects also qualifying under the energy efficiency and accessibility criteria.
Units must have a minimum project size of five units, although retirement homes are required to show at least 50 planned units or beds. A minimum of 50 points is needed to qualify for the program, with borrowers able to commit to any combination of affordability, energy efficiency, and accessibility for social outcomes.
Under the highest number of possible points awarded, a project could qualify for a maximum loan to value (LTV) of 95%, with an amortization of up to 50 years, and waived rental achievement holdback.
The success of the program is one of the main reasons that the multi-unit space is thriving in 2022 – although that can also be attributed to potential buyers getting cold feet about making a move in the housing market, according to Kowalew.
“I would say multi-unit is continuing to perform, and one thing is that when interest rates go up, people tend to delay buying their homes or they become renters for a longer time,” she said. “So, we’re facing a really low vacancy rate.
“All of these things make us believe that rental rates, dollars per square foot, are going to keep climbing because the construction market is not able to support the demand… So it’s [a] really interesting dynamic for these types of products such as multi-unit. I think industrial is still very strong, too. But I specialize in multi-unit, and I think it’s a really good asset class to be invested in right now.”
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Borrowers under the scheme are required to demonstrate competence and experience that match the size and property type they’re seeking mortgage loan insurance for, while they – or an affiliated corporation – must show at least five years of management experience operating and managing similar multi-unit properties.
Applicants must also show a minimum net worth of at least 25% of the requested loan amount – and a minimum of $100,000 – although CMHC sometimes takes a flexible approach for insurance applications with a total score of 100 points or over.
While CMHC’s president and CEO Romy Bowers indicated in March that the program would move the agency closer to fulfilling its aspiration to ensure that everyone in Canada has an affordable home that meets their needs, that reality appears to be some way off.
CMHC recently revealed in a new report that it expects to fall well short of its target for 3.5 million new homes to be built by 2030, with labour shortages one of the chief causes for that projection.
Those challenges are most pronounced in some of the country’s most populous provinces including Ontario, British Columbia and Quebec.
