In the market to buy a new home? Whether you’re in the early stages of browsing through house listings online or you’ve already been going to numerous open houses in your area, there’s something you need to know. If you’re a Canadian citizen and listen to or watch the news, you’re probably familiar with the unaffordable housing prices that are appearing in larger cities like Toronto and Vancouver. In efforts to reduce debt and unaffordability amongst middle class citizens, the feds have implemented new housing rules as of October 17th.
Home-seekers will now have to go through a “stress test” to be able to invest in property. Simply put, in addition to being approved by a mortgage broker for a house loan, the government is also going to assess your household income to see if you’ll be able to make your monthly mortgage payments if interest rates rise. The reason? Home-owners just can’t afford the homes they’ve purchased due to rising interest rates and mortgage approvals beyond their income range. This puts many borrowers in a scary debt situation. The purpose is to avoid granting loans for home purchase if the borrower won’t be able to make their monthly mortgage payments.
On November 30th, another policy change will come into effect with efforts to stabilize the housing market in large cities where middle-class families can no longer afford to live. This policy will require eligibility criteria on mortgage loans that the banks insure with portfolio insurance. This was previously only applied to high leverage insured mortgages and has been put in place to combat foreign investors (who aren’t living in the homes) from investing in realty only to sell the property at a much higher price.
In further efforts to avoid foreign-investors from purchasing and quickly selling properties, the government has implemented principle-residence tax exemption. This is a new policy where exemption will only be available to Canadian residents and will help home-owners avoid paying capital-gains tax on the sale of a home where they are currently living. Residents will also be allowed to designate only one primary-residence.
As you can see, the government is taking drastic measures to increase affordability amongst middle class families looking to purchase a house and lower the risk of the housing market in general.
While Swiss Bank UBS claimed Vancouver as the “greatest risk of a housing bubble in the world,” Ontario’s housing minister, Chris Ballard stated that he’s also very worried about Ontario’s housing market as well. By implementing new policies, understanding foreign-buyers and realty data, the hope is that properties will become more affordable and middle-class debt will be reduced.
So if you’re looking to invest in real estate, make sure your household is in a decent financial position to borrow, otherwise… you may need to put buying a house on hold until you’re in a more favorable financial position that will fully support your mortgage payments. There are plenty of aspects to consider before investing in real estate and while having enough money has always been one of them, it’s more imperative now than ever before.