Home dreams in jeopardy

The federal government has announced new rules to try and cool the heated real-estate markets in Vancouver and Toronto. 

The change limits the foreign money going into the Canadian real-estate market by closing a “loop hole” that was allowing non residents to purchase a “home” in Canada.

It exempted the property from taxable capital gains upon its sale by deeming it their residence. 

The other change announced by the government recently was the “stress test” for high ratio buyers. 

 "Overall, I believe the housing market is sound, but as minister of finance, I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk," Finance Minister Bill Morneau said in Toronto.

The government has introduced changes to qualifications to ensure that buyers purchasing homes at the high prices and low interest rates are able to make their payments when interest rates rise. 

Currently, if a purchaser with less than 20 per cent down payment buys a home and takes a mortgage term of five years or more, the lender and insurer qualify them at the interest rate they obtain. 

The current rate for a five-year fixed mortgage is about 2.44 per cent. The new rules will require that the borrower is qualified at the Bank of Canada’s Benchmark rate, which is currently 4.64 per cent. 

This rate is used right now to qualify high-ratio buyers who want to take short term or variable rate mortgages.

This change in qualification will have a dramatic affect on the buying power of a purchaser. 

For example, if a couple were to buy a property today and had $80,000 in income and no debts, they would qualify for a home of approximately $520,000 with $27,000 down payment and a  $493,000 mortgage. 

This is with using $200 per month for taxes and $120 for heating. 

If this same couple waited until today to apply, they would only qualify for a  $430,000 property with the same $27,000 down and a mortgage of $403,000. 

This change means a drop in buying power of $90,000 for a couple making $80,000. 

This will force a lot of first-time buyers and move-up buyer with low equity to rethink their dreams to purchase a home. 

That means they will have to purchase a property that is 17 per cent less. 

With the real estate market having increased by 20 per cent in 2016 they may not be able to find something they can qualify for.

 If you have any questions about these changes please email [email protected] or call 250-862-1806.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.