The Vancouver Sun has some good tips for people who are completely unable to save up for the largest purchase of their life. People who either spend too much on entertainment and shopping or simply don’t earn enough to save. Buy a house.
Yes. Because the people that should be buying real estate are people who are unable to save up a few thousand dollars.
Their advice ranges from the ridiculous (reign in spending habits) to the sublime (ask mommy and daddy for a down payment).
Saving money for a down payment, especially in British Columbia’s high-priced housing markets, is one of the biggest challenges that homeowners face, but mortgage experts say, it’s not impossible.
The minimum down payment new homeowners need is five per cent of a home’s purchase price, which can be particularly difficult to accumulate for those in the most need: young people, often with student debt and lifestyles that involve a lot of restaurant meals and going to movies once or twice a week.
Yeah, that’s 5 percent goal is super-tough, but it just might be achievable according to ‘mortgage experts’. You can always tap into your RRSPs, and don’t forget that you can get yourself a zero-down loan (we call them ‘cash-back’ mortgages).
…some lenders have a cashback option that can be used against a down payment. “The clients have to take posted rates [not discounted] and some lenders will give you five per cent of the mortgage amount as cash back. On $400,000 that would be $20,000, the five-per-cent down payment that is required.”
Are you worried about the effects of rising mortgage rates? Apparently 48% of British Columbians surveyed say yes:
As concerns over the state of the Canadian real estate market abound, a new survey says nearly half of Canadians are unsure about their ability to afford their homes if rates rise by as little as two percentage points.
The survey commissioned by the Bank of Montreal study finds 43 per cent believe an interest hike would either hamper their ability to pay or leave them on unsure footing.
Regionally, residents of Alberta were the least concerned, with 73 per cent saying that rising rates would not affect their ability to afford their homes, while residents of British Columbia were the most concerned. Just 48 per cent B.C. residents are comfortable in their ability to handle higher rates.
Yet interest rates, after bouts of rising and falling, seem low and could remain low for some time to come. Is Canada living in a bistable rift, capable of maintaining high prices with low rates ad infinitum, or should we look to the experiences of the USA and Japan, countries where low rates have not lead to a reconstitution of house price appreciation, for more chilling portents?
Bank of Montreal Chief Executive Officer Bill Downe is saying there are ‘legitimate’ concerns about house prices being over inflated and coming down, particularly in Toronto and Vancouver. He is now calling for the fabled ‘soft landing’ to swoop in and fix the problem:
“We took a long, hard look at the Canadian housing market and concluded … there was a legitimate concern that house prices – particularly in the largest cities – had been rising at a rate that was simply unsustainable,” Mr. Downe said.
“With growing concerns over household debt, a soft landing in housing is in the best interests of our customers and the national economy.”
For those that are curious, yes this is the same BMO that kicked off a rate war with competitors over a special 2.99% mortgage deal. If you’re wondering why a bank would offer credit crack and then tell the addict they should cut back I think Patriotz puts it very clearly:
Because he runs a business and it’s his responsibility to the shareholders to make money. It’s either lend at 2.9% or give the mortgage business to someone else.
Banks like every other business have a responsibility to obey the law and that’s what they are doing. If you don’t like the parameters that the government has established, blame them not the banks.
This is why you’ve been hearing more call from the banks for the government to tighten lending standards. No single bank can cut out a huge percentage of the market just because they’re concerned about over-debt households. The banks can’t even get together and agree that they’ll adjust their lending standards themselves, because that would be collusion and illegal.
It’s all up to Flaherty now.
Wow, it seems like it was just a few days ago we were talking about newly introduced teaser-level mortgage rates offered by Canadian banks.
… oh, it was just a few days ago.
BMO kicked off the competition and TD, Scotia and CIBC jumped in with competing lowball offers.
Well it looks like Scotiabank blinked first. Their special offer didn’t even last a week. Canadian Mortgage Trends is reporting that Scotiabank has pulled their special offer for a 2.99% rate. Guess we’ll have to wait to see if the other banks will follow.
And speaking of mortgages, Canadian Mortgage Trends also has some interesting analysis of the OSFI recommendations for underwriting practices and how it’s about to lead to mortgages that are a bit tougher to get.
After reading through 18 pages of changes in detail, our immediate reaction was frankly, concern.
That’s not because the guidelines are greatly imprudent. Some are unnecessarily rigid, but most are sound policy.
It’s because OSFI risks tightening too much, too fast.
If you’re sharp-eyed you may have noticed some ‘special offers’ on 5 year fixed rates. BMO kicked off another low-rate war by once again offering a rock-bottom 5 year fixed rate of 2.99% and a new 10 year fixed at 3.99%.
Nobody wants to be left out of fun like that, so TD, CIBC and Scotiabank quickly followed suit and started offering a 2.99% rate as well.
How are customers responding?
Techar said reaction to BMO’s previous offer was fantastic. “We saw an increase in volume almost immediately and it continued for the whole two-week period.”
These deals are temporary and expire in a few weeks. You’d almost think something was about to happen March 29th, but who knows? Rumour has it more changes are coming to insured mortgage rules in Canada whether it’s higher down payment requirements or shorter amortization terms.
So is this a deal too good to refuse, or a trap for the gullible?
If rates start to rise, could it be a benefit to buy a home now? Would these ridiculously low rates offset a drop in prices at a higher interest rate?
What about in markets whose prices have fallen for the last few years? There are many of these across BC – The Okanagan has seen prices collapse by more than 30% so already.
And what does Mark Carney have to say about all of this?
“Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk,” Carney said Thursday as he held the bank’s trend-setting rate to 1 per cent.