New rules hit housing market in Canada. Once again in an attempt to protect the already fragile banking sector in Canada, the liberal government has passed new rules that will impact and impede most people’s ability to purchase and refinance mortgages.
Some of the new rules will be put in place as early as October 17th 2016. These new rules come in at a time when interest rates are at an all time historical low in Canada and the housing market in Toronto and Vancouver is red hot.
The new rules will impact the majority of potential homeowners in Canada . However the reason they are being put in place is to curb the markets in Toronto and Vancouver. Policy makers are looking very closely at those markets and as such, are looking to implement changes that will slow down the growth of this bubble that is currently growing in those cities.
The new rules that will hit the housing market in Canada are …
- All mortgages as of Oct.17th 2016 will have to be qualified on the Bank of Canada rate instead of the rate that the client is receiving. As it currently stands if you apply for a 5 year fixed mortgage, whatever the rate is that you are receiving is the rate that you will be qualified on. Currently, on all mortgages that are variable or that have a term of fewer than 5 years you have to go through a qualifying rate that is the 5 year Bank Of Canada rate. The new rules will see that all mortgages of any term will have to be qualified for the 5 year BOC rate. Anyone who has already been approved for a mortgage must fund by mid March to avoid the rules changing on them.
- Effective Nov. 30th 2016, the government will put in place new restrictions to low ratio mortgages. As of the date mentioned, the government will no longer back mortgages that are on homes over $1-million. As well they will not back any mortgage that the borrower has a credit score of less than a 600 beacon and any mortgage that has an amortization of greater than 25 years. Again this rule will impact many future buyers of homes in Canada and those seeking to refinance high-interest debt into a mortgage. However, the rules were put in place for Toronto and Vancouver markets as well.
- Effective immediately, Canadians will have to report to the government when they sell a primary residence and declare any financial gain that was realized from this sale. As it stands currently you are not required to report any financial gain to the government for your primary residence. The new rule will force Canadians to declare any gains made, even though it is non-taxable according to the Canada Revenue Agency. This change is being put in place to avoid having flippers taking advantage of the capital gains exemption for primary residences. Again this is targeting foreign investors in the Toronto and Vancouver markets.
- The final change that is being looked at is to share the risk on default insurance with the banks. As it stands currently the government is on the hook for 100% of an insured mortgage. With the new rules, the risk would be shared with the banks.
Since 2008, the Government has made 5 previous changes to housing policy, this will be the 6th time that we see changes. For more information regarding the previous announcement please see our past blog posts. I would love to think that this is the last that we will see of the government’s finger in our soup but the reality is that as long as rates stay low and you have people getting into the market that shouldn’t be, the government will continue to intervene.
As always I am available for questions and look forward to any comment you might have.
Chartered Mortgage Broker
CEO North East Mortgages