Let’s deal with the important stuff first –
Buyers: if you are planning to purchase a Chilliwack, Agassiz, Harrison home in the next 6 weeks think about doing it now;
Sellers: if you are thinking about selling your Chilliwack, Fraser Cheam property let’s get it listed.
The Federal Government is tightening mortgage lending requirements for some good reasons but the old action/reaction situation, in other words the outcome, might not be to everyone’s liking; namely, most entry level buyers and some sellers.
Personally, I think this tightening is unfortunate and that the once again overheated real estate markets in Canada’s large metropolitans are the root of these changes – that of course goes along with the fear of massive foreclosures when interest rates once again rise and the “party of maxing out borrowing” comes crashing down. As I have mentioned, a number of times, in this Blog the Chilliwack real estate market has only partly returned into a normal real estate market conditions after the market meltdown of 2008 – (housing looks normal but the apartment/townhouse sectors are still struggling). More flexibility in lending would still be appreciated.
Three Problem Areas (and there may be more)
1. Can’t Buy As Much:
As of April 19th, borrowers that are financing more than 80% of the value of their purchase will not be able to borrow as much. Why? Because instead of being qualified at the generally lower interest rates of a variable, 1, 2, 3 or 4 year term will have to qualify at a higher 5 year term contract rate or the Bank of Canada “Monday rate” currently at 5.39%. My friend, mortgage broker and a fellow professional member of the
Real Estate Institute of British Columbia Brad Currie sent me this example.
A household income of $60,000 per year would service a mortgage of approximately $351,000 at present. Under the new rules the maximum amount would drop to about $285,000.
How much an effect will this have on the price that sellers get for their homes when Buyers cannot afford what they once could?
2. Affordable Housing takes a Wallop
The creation of Affordable Housing at the “grass roots level” will take a hit as the amount that such rents contribute to a mortgage payment gets reduced from 80% to 50%. This will reduce the size of the total mortgage that a borrower will qualify for. Again,
Brad Currie explains:
They are going from an offset method, where we can presently use up to 80% of the income from the suite and offset or deduct it from the mortgage payment. The borrower then qualifies based on the lower payment. Under the new changes, 50% of income will be added to the borrower’s gross income for qualification purposes. Therefore a home with a suite renting for 900 per month means a borrower will be able to add $5,400 ($450 a month x 12) to their income used to qualify. $5,400 does not translate into much more mortgages.
Currently it takes an annual income of $42,000 per year to qualify for a mortgage of $400,000 on a home with a rental suite renting for $900 per month. After April 19th, the same mortgage will require an annual income of $75,000.
To bad this disincentive to purchasing or providing affordable housing in the form of a “mortgage helper” is not being better supported. Again the question about what these “suited properties” will sell for after these changes are made should be thought about.
3. Self Employed Borrowers – Tougher Times
I have to admit to having a soft spot for self employed people, they shoulder a tremendous burden for this country providing innovative new products and services - the thanks they get? A kicking when it comes time to borrow some money. Sure they are riskier than say a person with a comfortable pensionable government job but this country should decide to back these people for the risks they take and give them a break. Do we want to encourage entrepreneurship or fleece it?
Here the self employed will now have to use their declared personal income (after expenses) as stated on their tax returns to qualify for a mortgage with a minimum down payment of 10%. That will put a lot of them out of the housing market.
What should be done?
1. There should be more flexibility to help bring up struggling real estate markets within the country. Drop the blanket requirements and use them tactically. I have to think that a $330,000 house in Chilliwack is a lot less risky than a $581,000 house in Metro Vancouver.
2. We need to encourage affordable housing in this Country so keep the contribution of rents at the current levels of 80 percent.
3. How to help self employed people begins with a commitment from government that they want to help the self-employed risk taker of this country. That is where it starts.
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Stephen Mullock is a Chilliwack real estate associate broker with 29 years of experience. He can be reached at Royal LePage Wheeler Cheam Realty, telephone 604-792-0077.
