Homeowners in the Toronto area are witnessing a rise in private borrowing thanks to higher interest rates and more stringent lending standards.

The Canadian government introduced more rigid lending rules, which will surely the amount of money Canadian home buyers will be allowed to borrow. This new rule aims to help reduce the demand in the housing markets of the Greater Toronto Area. These stricter lending rules will help to prepare first-time buyers for higher interest rates.

Regardless of how you want to look at it though, these new mortgage rules mean that first-time home buyers won't be able to borrow as much as they could. Anytime a home is bought with a down payment lower than 20%; the mortgage will need to be insured.

However, with the new rules, the amount that first-time buyers will be able to afford is estimated at around 18%. A truly significant change.

Before the new rules kicked in, a first-time buyer with an $80,000 family income and a down payment of $40,000 would have been approved for a loan with a maximum price of $520,000.But, with the new rules, the same family will only get a maximum price of $425,000.

The new mortgage rules were created to ensure first-time real estate buyers can handle an interest rate hike. It would also help to cool the high demand housing market. Sadly, the new rules give first-time buyers less buying power at a time when real estate prices are rapidly rising.

According to Financial Post, private lenders funded about twenty percent of refinancing for mortgage deals in the second quarter. This was an astounding sixty-seven percent jump from the first quarter of 2016, according to a report by Teranet, a Toronto brokerage Realosophy, and property data provider.

The rising interest rates, more stringent standards needed to qualify for a mortgage, and higher home prices are making it hard to buy homes and pay off mortgages in Toronto. The new mortgage rules require borrowers to prove their ability to make payments at higher rates, and apply to new mortgages and refinancing, or transfer to a different bank.

“Most of these lenders are mortgage brokers who have set up mortgage investment corporations to raise money for lending,” said John Pasalis, president of Realosophy in an email.

The report also said that the total private mortgage volume jumped to $1.5 billion in the second quarter, from $920 million in the first quarter of 2016. About half of the private lending that occurred in that period was on detached homes needing refinancing. The second highest segment was for condominium refinancing.

The most significant number of people turning to private lenders were those in their 30s and 40s. According to the report, they accounted for 42 percent of all transactions. A reason for this increase could lie in the fact that some owners prefer to do major renovations to an existing home than move to a bigger one.