Yesterday, the powers that be in Ottawa made a few moves to slowly cool down what is now an insanely hot real estate market, and to ensure that buyers aren’t overextending themselves and taking on too much debt.
There two major moves that the government has made:
1/ Closing the loophole for non-resident buyers to avoid paying capital gains when selling residences in Canada by classifying them as principle residences.
New rules will make it mandatory for anyone who claims an exemption on capital gains tax when selling a home to report the sale on their tax returns. Families will be allowed to claim an exemption on only one home a year and the home’s owner must live in the property. Globe and Mail.
2/ Effective October 17th, making it necessary for any buyer who is putting down less than 20% on their purchase, to qualify for a mortgage based on the posted rate of 4.64% … not the rate of nearly half that that you are likely qualifying for now with a mortgage broker or bank. Don’t worry, this isn’t the rate you will actually get when you mortgage a home, but it is the rate that all banks and mortgage brokers are now required to qualify you for a purchase.
What this means for:
Buyer with less than 20%: Now’s your chance to jump on that place you have been humming and hawing about. You have 13 days to have an offer accepted and firm, before your budget gets cut drastically by your bank/mortgage broker based on these new rules. Have a pre-approval in place? That won’t matter and you will have to be pre-approved again with these new rules applied.
Buyer with more than 20%: you will likely see less buyers at the table, or in those bidding wars come October 17th. There may be less buyers at the table, but the ones at the table will be all that more qualified to purchase the home you are in love with. This means that it’s as important as ever to get your ducks lines up when going into a bidding war i.e deposit cheque in hand, pre-inspection, financing double checked.
Sellers: If you have a home that appeals to the first time buyer demographic, get it on the market ASAP so you can increase the amount of buyers coming through your door before October 17th.
While a lot of people are upset about this new rule with reason (i.e not being able to afford a house in Toronto anymore!), I do think it’s positive that the government is looking out for over extended buyers, ensuring they will be able to afford a mortgage in 5 years when rates go up.
I think that this new rule will impact the condo market, as we will see a lot of the buyers who once could qualify for a house, have to move down to the somewhat more affordable condo market. I also think that buyers will continue to look to mom and dad to help out with that downpayment, bumping them to that 20% mark, and in turn affording them more in Toronto.
Do you think this will slow down the Toronto real estate market?