This is not a new subject – if you have been speaking with me, you can hear the frustration in my voice. As a mortgage broker but also a tax-paying citizen, I am frustrated, because the government is impacting my ability to live comfortably and afford the lifestyle I and you pay for, through our taxes. Home ownership has become a privilege rather than a right in this country and that is a huge shame!
October 2016, we saw a shake-up to the industry when the government first started playing with the rules. Through the guise of controlling foreign buyers, it did nothing to impact them, however it definitely impacted us in our buying power and in some cases by 20%. Now looking forward, that will be further impacted again in January, 2018. Regardless if we put 20% down or not, we now have to qualify at the qualifying rate (currently 4.89% + 2%), which is the new stress test. This will impact your ability to qualify!
Not sure who will be able to qualify at this rate! So how will this impact you? Let’s look at some examples.
Let’s say you bought a pre-construction home last year and you will be closing after January 1, 2018? Prior to this date, you had to put 20% down and for the pre-approval, were able to qualify at the qualifying rate. If your ratio’s were in line, but still close to the border, you are now going to be way over, meaning that you either have to have a higher down-payment or a co-signor on the deal, who can help you qualify, which means in essence they get impacted as well. Also assignment clauses will be more difficult to trigger, because your assignee must now qualify at the higher stress test rate. If this is in your plans, now is the time to act!
Another example, would be when it comes to refinancing your home or your rental property. Lenders will now put you through that new stress test so your LTV will be lower than 80% – you may be looking at a max of 65 – 75% LTV.
This new rule applies to non-resident buyers as well, so if you are considering purchasing a rental property after January 1, 2018, get in touch so I can help you crunch those numbers! You will see an impact of 20% less buying power in some cases, depending on how you earn your money abroad!
Single family rentals are already hard to purchase and now with the new stress test, cash flow will be much lower or nil. Something you as an investor should be concerned by.
Still interested in buying rentals in Canada even with the new stress tests and rules, that make it harder to qualify? Consider buying with friends and/or family, through what is called a JV agreement. Make sure you speak to a lawyer, who can assist you in setting up a proper JV agreement – this is not the time to only think about rates, but more importantly as I have mentioned before, your exit strategy. This has never been more important than it is now!
Concerned about how this will impact you? Reach out to me – let’s look at your situation, make some plans and get ahead of these rules now before it is too late!