Purrfect Properties Blog

Posts Tagged ‘Mortgages’

Now that the elections over, let’s talk about that crazy mortgage change!

Thursday, November 10th, 2016

Hi Folks,

This isn’t the greatest news you’ve heard but it’s worth taking a look at.  Recently the Minister of Finance, Bill Morneau, announced four major changes to Canadas’ housing rules.  These changes mainly address concerns on foreign buyers and the high debt of middle class families over housing affordability.  In general, these new mortgage changes are going to decrease the buying power of Canadians by about 20% on every price range. Check out the chart below to really see the differences we are talking about here.

What this means, is that before you go to sell your house, or buy one for the first time, please understand that your champagne wishes may have to recede to your beer budget.  For example at the average annual income of $80,000, without debts and with 5% down payment – your buying power has decreased by almost $100,000.  $91,690 to be exact.  That’s a huge difference and it is directly within the average price range of Edmontonians and their families – sure to affect housing prices in the future.

Worse, is the average person needed about $220,000 to get their family in a townhouse condo (2 storey style) in our market.  This price range has suffered about a $50,000 drop in loan amounts which means buying an entry level townhouse condo is going to be even more hard.

There is a very fine line when you are deciding to buy a property for the first time.  Often a buyer just doesn’t have the down payment to complete the purchase.  Rising house prices make down payments more difficult to obtain.  Mortgage changes make loan applications more difficult to be approved.  Mortgage insurance groups reduce the availability of loans by capping qualification ranges.  Everything is always changing and a person is always subject to those changes.  Most of the time however, it gets more and more difficult to get that approved loan.  So buy when you can, get into home ownership while you are approved and look forward to the gains you can make over the long period.  Real Estate is not instant, nor is it easy to off-load in an emergency.

Shadow banking is most likely set to increase with the changes to regular lending.  Borrowers unable to secure tradition financing sources, will look to alternate sources, many of which are unregulated and outside of federal banking rules.  Uninsured loans at interest rates typically much higher than those provided by banks.

Change #1 – Effective October 17, first time home-buyers with mortgages inured by the CMHC will now undergo a more severe stress test to ensure buyers can still pay for their loan even if the interest rates go up.  This means consumers have less purchasing power.

Change #2 – Starting November 30, new restrictions will be imposed by the government on providing insurance for low-ratio mortgages.  The new criteria will include amortization period of 25 years or less, purchase price of less than $1 Million, the buyers credit score is 600 and the property should be owner-occupied.  This measure is targeted for Vancouver and Toronto markets.

Change #3 – New reporting rules for the primary residence capital gains exemption. The sale of the primary residence must be reported to Canada Revenue Agency.  This measure is to prevent foreign buyers from flipping houses and falsely claiming the tax exemption.

Change #4- The government is launching a public consultation paper on proposals for lenders, such as banks, to take additional risks in the event the insured mortgages go into default, which could mean higher mortgage rates for buyers.

All in all, before your renewal, before moving or before buying it would be advantageous to talk to a trusted mortgage professional about these recent changes and how you will be affected in the future.   If you need to speak with a trusted professional about how you are affected, please do not hesitate to contact me, I would be pleased to let you know who I am recommending these days.

Talk to a professional, contact me today.