More major changes were implemented in the mortgage industry last week. Both the Federal and Provincial Governments had their say, targeting Down Payments and Property Transfer Tax. One to suppress the heated housing market and the other to stimulate new builds and generate more tax revenues from luxury home buyers.
Between 2008 and 2012, four rounds of Federal Government changes have been made to tighten eligibility rules for new insurable loans, including:
- Increase the minimum down payment to 5 per cent;
- Decrease the maximum amortization period to 25 years;
- Limit the maximum insurable house price to below $1 million;
- Apply maximum debt service-to-income ratios; and,
- Apply a mortgage rate stress test for mortgages with terms of less than 5 years or variable rates.
This is in addition to Mortgage Insurer, CMHC, removing stated income and second home programs in 2014 and announcing increased premiums in 2015, which was followed by Genworth and Canada Guaranty, two privately owned mortgage insurance companies.
DOWN PAYMENT CHANGES
Effective Monday February 15, 2016, homes purchased over $500,000 will require more than a 5% down payment. For any portion over $500,000 up to $1,000,000, the minimum increases to 10%. The down payment over $1,000,000 remains at 20%.
Department of Finance Release, "Government of Canada Takes Action to Maintain a Healthy, Competitive and Stable Housing Market"
Department of Finance FAQs
Globe & Mail reports, "New mortgage rules go into effect, part of Liberal plan to limit risks."
PROPERTY TRANSFER TAX CHANGES
After announcing on Tuesday February 16, 2016, new Property Transfer Tax (PTT) changes came into effect Wednesday February 17, 2016.
Despite repetitive appeals by the BC Real Estate Association to lobby for lower PTT, most recently in October 2015, as noted in the article "Major Change to Property Transfer Tax Unlikely" covered by Barbara Yaffe of the Vancouver Sun, tax cuts were not part of the announcement.
Key points of the PTT budget include:
1. First Time Home Buyer Exemption - No Change No changes to the First Time Home Buyer Exemption limits. This remains at $475,000 or lower, with partial exemptions between $475,000-$500,000;
2. Newly Build Home Exemption All buyers (whether First Time Home Buyers or not) no longer pay PTT on purchases of NEW homes up to $750,000 in value. The Buyer must be a Canadian citizen or a permanent resident. There is a partial exemption for homes between $750,000 and $800,000;
3. Higher Tax over $2 Million There is now a 3% tax on amounts over $2,000,000.
Read more by Huffington Post, B.C. Budget 2016: Real Estate Market To See Tax Changes.
QUESTIONS?
If you have any questions regarding these changes, please don't hesitate to call or email Irene at irene@irenestrong.com or 778-847-8466.
