New mortgage rules mean raising babies in apartments, financial planner says

New mortgage rules that took effect on Monday will likely mean many millennials will have to raise infants in apartments, says a Toronto financial planner.

Shannon Lee Simmons, a certified financial planner at the New School of Finance in Toronto, told CBC'sMetro Morning on Monday thatmany millennials hoping to buy their first homes mayhave to rent for a little longer, maybe even three to five years.

"We are all going to be raising babies in apartments. That's what it's going to come down to," Simmonssaid.

Her advice to millennials, of which she is one, is accept their plight, don't overdo it on rent, stay in an apartment with affordable rentfor three to five years, start your family,pay for day care and come out the other side withsavings.

"Accept your fate a little bit," she said.

"You may feel like you are sacrificing a lot. This isn'twhere you saw yourself. I get it. I'm in the same boat myself. However, we're going to be that much better off five years from now from renting. An infant doesn't care if they are in an apartment. We care if they are in an apartment. But an infant doesn't care."

The newrules boil down to a stress test for all insured mortgage applications. That means a testto determine if a borrower could afford to pay back a loan if the rate was higher, so aborrower will be judged against the five-year standard rate of 4.64 per cent for a five-year loan,even though many lenders are currently offering mortgages at far less than that.

Previously, that test was only used on certain segments of the market. But starting on Monday, it will be in place for any insured mortgage for a buyer putting down less than 20 per cent of the home up front.

Simmons said the new rules essentially mean most people will qualify for less money. The rulesare designed to ensure Canadians don't assume mortgage debt theycannot manage if interest rates riseonce they need to renew.

"It's for the greater good," she said. "I used to do this with my clients all the time. But now it's enforced and mandatory, so it does take some choice out and I think it's going to affect first-time homebuyers."

Simmons said the new rules will affect first-time buyers becauseit's hard to raise a 20 per cent down payment, and it willhave an impact on bidding wars because buyers will not be able to bid as much as they want.

The rule changeswill mean millennialswho want to buy homeswill have to save money, by spending less or making more, while they rent, she said.

Overall, she said, theycouldmean a change of plans.

"I'm a bit gutted for them, although I agree with this on a philosophical level," she said.

"It's tough already. Some of my clients were planning on taking the plunge this year. Now, they feel like: 'What's the point of trying because I can't even save at the same rate that the house prices are going up. It's going to take me that much longer now,'" she said.

Decentralization of work may solve problem

"Now, I think that there's frustration and it feels like the dream of home ownership gets farther and farther away."

Simmons said the hot housing market has affected the rental market as well because landlords have increased rents for larger apartments, knowing that people cannot afford to buy but want more space.When it comes time to start a family, she said it means strugglingwith high rents while not being able to move to bigger homes.

"Now you have a whole bunch of people who feel they cannot move forward," she said.

But if work becomes decentralized, then she saidmillennials will be able to work from home and won't needhouses in big urban centres anyway.

"That's the millennial dream," she said.