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Advice For Buyers Video Blog

How Will the B-20 Mortgage Guidelines Impact Your Purchase?

For the second time this year, new guidelines are being introduced that will impact how Canadians get approved for a mortgage… and for the second time this year, a lot of people are confused by what these changes mean! I’ve put together a short video to better explain who IS and ISN’T affected by it, and what it all means.


 

10 Ways The New Changes May Impact You

  1. The new guidelines would introduce “STRESS TESTS” for all purchasers taking out a mortgage with MORE than 20% of a downpayment.
  2. If you’re putting LESS than 20% down, taking a VARIABLE mortgage, or a term of less than 5 years – you’re already subject to qualifying under a stress test. No change to this segment of the market.
  3. If you’re putting down MORE than 20% – you too will also be subject to the test.
  4. The guidelines will require purchasers with more than 20% down to qualify at the Bank of Canada Rate OR the Contract Rate + 2% (which ever is higher)
  5. For Example: Say the banks are offering you a 3% fixed rate for 5 years.  In order to be approved for it, you must actually qualify at 5% (3%+2%).  
  6. Because purchasers are qualifying at a higher rate, many will see their max budget amount reduced by roughly 15-20%
  7. The new guideline ONLY apply to those lenders that are deemed a Federally Regulated Financial Institution (currently 85 in Canada).
  8. Those that don’t fall under Federal Regulations are not subject to the new guidelines.  The most popular alternative is CREDIT UNIONS like Duca or Meridian… although there is some discussion that they may adopt similar measures to the B-20 Guidelines. 
  9. Although many will see their MAX budget reduced – it’s important to remember that NOT EVERYONE wants to spend the max a lender can make available for them.  I know of many clients who chooser to only spend 60, 70 or even 80% of their max budget on a purchase.
  10. Like all changes in the market, there will be an adjustment period of probably 4-6 months for people to adjust to the changes.

More Reading:

Final Revised Guideline B-20: Residential Mortgage Underwriting Practices and Procedures

Canada’s banking watchdog sets tougher rules for mortgage lending

New mortgage stress test to hit ‘move-up’ home buyers

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Advice for Landlords

A Summary of Kathleen Wynnes Changes to the Real Estate Market in Toronto

Premier Kathleen Wynne, Finance Minister Charles Sousa and Housing Minister Chris Ballard announced plans to cool Ontario’s housing market.  We’ve summarized the proposed changes, and included our thoughts on how it we feel it impact the market:

Rent Control For All Tenants

Current rent controls, only apply to properties built prior to 1991 leaving many of Torontos downtown condos exempt from increase limits (currently set at the rate of inflation). The new proposals will now cover all properties regardless of when they were built.  

They are also looking into unlocking provincially owned surplus lands that could be used for affordable and rental housing development and a $125-million, five-year program to encourage the construction of new purpose-built rental apartment buildings by rebating a portion of development charges. 

These steps won’t really do much to add to the current lack of supply, and with the introduction of rent controls, will probably deter developers from ever actually building new rental stock.

I do think that rent controls are needed, but at rate higher than just inflation – something as simple as inflation plus 5% would result in only a $140 rate increase/month on a $2000 rental.  I was hoping the Liberal government would have introduced some controls on Hydro and Heat costs to help with monthly affordability for all!

Standardized Lease Document for all Tenants

This was briefly mentioned in todays announcement – Its purpose was to ensure “illegal terms and conditions” were not included in leases. I’m not entirely sure how they plan on handling this one as the Landlord and Tenant Board already has pretty specific guidelines that cover what can and can’t be included in leases.  Also, every rental provides its own unique set of challenges that require the crafting of pretty specific clauses. To have a standardized lease could leave both sides unprotected!

An Assignment Ban

The government wants to ban speculators from assigning their pre construction purchases before completion. It’s not clear how they plan on qualifying someone as a speculator vs. a buyer who’s outgrown their space before the project completes.

A typical project takes about 2-5 years to complete and in that time things can change.  I’ve worked with several buyers that have outgrew their initial purchase and wanted to sell before the project closed.  When buyers take this route, the often sell at less than market value, but for more than their original purchase price.

We don’t see very many properties sell by way of assignment as they are often tricky to complete and require builders approval before the sale can be finalized.  Those that do sell, often sell for less than market value (which helps those trying to get into the market)- so I’m not really sure how this will help with affordability.

Speculation Tax for Non-Resident Foreigners

Several reporters at todays announcement asked the officials for data to back up the claim that foreigners are buying up all these properties – but each time the question was avoided.  In reality, the government doesn’t currently collect this information. As part of todays announcements, all purchasers will now have to reveal their citizenship and where they live. Buyers will also have to disclose if the property will be used as primary residence or investment (something we already have to do when applying for a mortgage)

They also planned to introduce a 15 per cent tax on home purchases by non-resident foreigners… but of course, since they currently don’t have any real data on exactly how many foreigners are actually buying property at the moment – it’s hard to say if this actually take any competition out of the market.

Final Thoughts

I’m a bit relived that these aren’t the catastrophic changes some have speculated may happen. “This plan balances those needs to stabilize the market and prevent a sharp correction that would be harmful to everyone,” said Wynne. My take is that ultimately these measures won’t bring much change to Torontos real estate market. 

If you’re a buyer, things won’t be getting any easier anytime soon. You’ll still be faced with 5-20 people bidding for your “dream home”, with or without the foreigner tax.

Sellers, the climb continues (unless you’re trying to sell an assignment). Economics 101 teaches us that this price increase is fueled by a lack of supply and a ton of demand.  

Renters of properties built after 1991 who haven’t received a rent increase in the last 12 months – expect a price bump in the coming weeks.