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Changing Mortgage Rules and The Canadian Real Estate Market.


As we all know the price of real estate in Toronto and Vancouver has been increasing at an alarming rate over the past few years. This has been the result of many factors, two of which being extremely low interest rates and high levels of foreign investment. The Canadian government is beginning to realize that the risk of a housing bubble is very real. Over the past couple of months, we have been seeing the government make significant changes to housing and mortgage laws. The most recent changes coming just a couple of weeks ago. These changes can be found at http://www.fin.gc.ca/n16/data/16-117_2-eng.asp. The 3 key changes to note from these revisions are updated requirements for GDS and TDS ratios, changes to low-ratio mortgage insurance eligibility, and changes to principal residence rules for foreign buyers.

1. There is a new mortgage rate stress test that is being applied to all insured mortgages. The purpose of this test is to ensure that home owners will still be able to service their mortgages if interest rates increase. Recently TD Bank increased its prime rate .15% from 2.70% to 2.85% the other major Canadian banks are expected to follow this move. It is very rare that major banks change their rates with out first seeing a shift from the Bank of Canada.

2. Low-ratio mortgage insurance eligibility has also been changed. A list of updated requirements can be found within the article listed above. I recommend anybody currently in the market as a first-time home buyer review the updates as they will likely be relevant to you. 

3. There is also a significant change to principal residence taxation rules for foreign home buyers. As of October, 2 2016 individuals who were not residents of Canada during the year in which they sell their property will not be able to claim the principal residence exemption. This is a significant exemption that allows home owners to not pay tax on the capital gain of their home. This is one of the changes being made in effort penalize foreign home buyers that are buying property in Canada but not living here.

Christy Clark’s Vancouver government also recently implemented a 15% surtax on real estate purchases made by foreign buyers. This tax was implemented to make real estate in Vancouver more affordable for native citizens of the city. So far the tax seems to be doing what it was intended to do, whether that is good or bad though, is another question. Since the tax was implemented foreign investment in Vancouver real estate has dropped significantly. This has also resulted in home values dropping significantly. For young people trying to enter the real estate this is very good as it makes real estate more accessible to them. Current home owners though are seeing a drop in the value of their home which in many cases is their largest asset. So far it seems that people are okay with losing some value in their homes for the betterment of the city. Over the next few months we will be able to see how this tax continues to affect the real estate market in Vancouver. I am sure if it is successful it is something that will be considered in Toronto and other foreign investment hot spots in North America. 

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