Category Archives: Canada

Mortgages getting more expensive

Southseacompany shared this article, looks like everyone’s mortgage is going to get more expensive:

The Bank of Canada raised its benchmark interest rate to 1.25 per cent Wednesday and signalled that, barring certain risks, more hikes are likely in the rest of the year. That’s creating an unusual situation for Canadians: for the first time in years, those renewing mortgages will be faced with higher rates and an increase in payments.

Even before Wednesday’s decision, five of the country’s largest banks hiked five-year fixed rates 15 basis points to 5.14 per cent last week. (CIBC is still offering 4.99 per cent.) In a country where consumers have grown accustomed to low rates, and where households are burdened with record levels of debt relative to income, this kind of change is worth noting. A recent survey published by insolvency trustee MNP Ltd.found 48 per cent of Canadian respondents were $200 or less away from being unable to fulfill their monthly financial obligations, an eight point increase since September.

Read the full article over at Macleans.

Tougher to get a mortgage in 2018

In the new year we’ll see a ‘stress test‘ added to all new uninsured mortgages, are you ready for that?

The Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, confirmed earlier today that there will now be a qualifying “stress test” for all uninsured mortgages, affecting consumers with downpayments of 20 percent or more.

Under current housing rules, only borrowers with a downpayment of less than 20 percent require mortgage insurance. This category of borrowers are already subject to a mortgage “stress test” that was introduced back in July 2016, amidst concerns about rising household indebtedness.

Right now, if you’re applying for a mortgage with a downpayment of 20 percent or more, the lender will assess if your financial situation is robust enough to afford a five-year mortgage qualifying rate, which currently sits in the range of 4.64 to 4.89 percent.

Under the new rules, OSFI will require that lenders use that same five-year mortgage rate plus two percent — essentially you’ll need to have income that qualifies you to afford an interest rate on a home loan of roughly seven percent.

Dave Madani says this is equivalent to a 17% reduction in the maximum mortgage people will be able to qualify for. Read the full article over at Vice.

Rate hikes in 2018

Southseacompany points out this article in the Financial Post warning of ‘three or more‘ rate hikes next year.

Investors are assigning a 20 per cent chance of an increase at the decision Wednesday, with a statement to be released at 10 a.m. Ottawa time. Only four of 26 economists surveyed by Bloomberg News expect Poloz to increase his 1 per cent benchmark rate, with all major Canadian banks expecting a pause.

Central bank policy makers — who raised borrowing costs for the first time in seven years in July and September — are handling the normalization of policy very carefully. By their own measure, interest rates are still a full 2 percentage points below what they would consider “neutral” but the Bank of Canada is wary of raising borrowing costs too quickly for fear of inadvertently triggering another downturn.

Read the full article here.

Sellers must disclose residency for tax purposes

It has long been the case that buyers are responsible for withholding 25% of the purchase price for the CRA to determine if capitol gains are owing, but now there will be a checkbox for the seller to indicate their residency status:

The B.C. government will soon require sellers to disclose their residency during a real-estate transaction so that information can be shared with the Canada Revenue Agency (CRA).

Observers say it’s a much-needed change that replaces an honour system that was open to abuse by speculators seeking to avoid paying capital-gains tax on properties they don’t live in. But some worry that because the province is placing the onus for confirming that information on the buyer, it exposes them to potential fines or even jail time if they get it wrong. A buyer who doesn’t properly certify a seller’s residency status could also be on the hook for unpaid capital-gains tax.

The government has changed a tax form used to collect the property-transfer tax to include whether the sellers in real estate transactions are Canadian residents under the Income Tax Act. Canadian resident homeowners do not pay tax on the increased value – or capital gains – of a property designated as a principal residence. Non-residents must pay capital-gains tax at the time of a sale.

Read the full article here

More supply in a bubble leads to a bigger crash

Southseacompany pointed out this article:

“The BC government has promised to tackle the housing affordability crisis in Metro Vancouver by “aggressively” increasing supply. A new study coming out of Princeton suggests that the NDP government may want to reconsider that strategy. In Economic Consequences of Housing Speculation, researchers link increased supply to a more severe crash when the bubble bursts”

“But Zhenyu Gao, Michael Sockin, Wei Xiong found that “housing speculation, anchored, in part, on extrapolation of past housing price changes, led not only to greater price increases and more housing construction during the boom in 2004 to 2006, but also to more severe economic downturns during the subsequent bust in 2007 to 2009.”

Read the full article here