Category Archives: debt

Loonie leaps on hints of rate hike

From southseacompany an article about the lowly looney leaping up on hints of a Canadian interest rate hike:

The Canadian dollar shot up Wednesday after the Bank of Canada held the line on a key interest rate but pointed to a boost in the future.

In foreign exchange trading, the loonie was ahead by 0.82 of a cent at 77.64 cents US when stock markets closed on Wednesday, after being up by more than one cent earlier in the day.

The central bank left its key target for the overnight rate unchanged at 1.25 per cent, where it has been since mid-January.

However, the bank said in a statement accompanying its decision that developments since April reinforce its view that “higher interest rates will be warranted to keep inflation near target.”

Read the full article over at the CBC.

BC Speculation Tax Impact

People who own more than one home are worried about the new speculation tax:

From a Vancouver Island resident with a condo in Vancouver: “If the proposed speculation tax proceeds as you describe, the two-per-cent tax will far exceed the B.C. income tax that we normally pay. We will have no choice but to sell our Vancouver condo. We’re not speculators. We simply wanted to enjoy a few days a month in the city we used to live in, in the comfort of our own condo.”

On the problem for seniors with recreational properties that have been in the family for years: “If they pay zero income tax because their annual income is low enough to warrant no tax — i.e. married couple making around $25,000 or so — they’d never recover the amount.”

From someone with a place on Saturna: “They call it a speculation tax, but it seems more like an empty home tax. The government claims that taxing homes which remain empty most of the year will help deal with the housing shortage. If that is the case, why isn’t Whistler included? The prices are skyrocketing and there is a real housing shortage for workers. On the other hand, they include a Gulf Island like Saturna, where there isn’t a housing shortage and housing prices haven’t risen in more than eight years.”

On the perverse incentives of a tax vis-a-vis longtime residents versus actual speculators: “If you speculate and sell the property quickly, you pay the tax once, while those keeping property for years pay years of tax. The short-term speculators win!”

Read the full article here.

Negatives for real estate

Yvr2zrh shared this comment:

Wow. Quite a lot of negatives for real estate values.

1.) If you live outside Vancouver and keep an apartment empty there, you now have a very punitive tax. Total will be 3% by 2019 (only 0.5% provincial in 2018 as a bit of a leeway to allow people to sell).

2.) FBT @20% – pretty good. Big tax – starts immediately. Wow . More people will get caught again. Deals will die. Also if property is over $3M – this will make it 25% for a foreigner to buy a Van West house. Then they have to pay 3% per year ($90K?) to leave it empty. Game over.

3.) The 2% spec tax – Strange name – it’s more of an absentee owner / empty home tax. It’s pretty sizeable. It’s going to be strange but somehow I think they are going to force it onto certain “principal residences” i.e. students, 10-Year visa people – who don’t qualify for really being a resident. Then – if they really pay tax in BC there is a tax credit. Good system.

4.) Full reporting of pre-sale transactions for tax purposes. I suppose that may help but you need to require a tax withholding for non-residents because otherwise – they just won’t pay.

5.) Unveiling all the hidden ownership – starting with collecting on new transactions and forcing existing transactions to be unveiled.

So – I would say that “Housing for Housing” has been supported and properties for non-residents etc – – that will be tough. What about all the Okanagan properties owned by Albertans – – It’s going to be interesting to see how many people bail!!!

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.