Housing Market Changes Are Happening

Most people know that the housing market has been increasing at a substantial rate. In order to curb the risk of a housing bubble the government is making changes in order to protect borrowers and lenders.

One major change is the homeownership tax exemption. “Finance Minister Bill Morneau said Monday that the government will make changes related to the principal residence tax exemption. The exemption allows homeowners to avoid paying capital gains tax on the sale of a home as long they were living in it.” CTV news

Rules against borrowers taking on too much debt will also be changing.

“Starting now, “an individual who was not a resident in Canada in the year the individual acquired a residence will not be able to claim the exemption for that year,”Finance Minister Bill Morneau said in making the announcement Monday in Toronto.” CBC news

“There’s a lot of people who are declaring their homes as principal residences when they’re not,” he said in an interview. “I think it’s more of cracking down on the existing law rather than plugging a loophole.”

Insured mortgages are also changing. Insured mortgages will be put through a stress test in order to ensure borrowers are able to sustain their mortgages at a higher interest rate. Moving forward, any insured mortgages will be tested against that higher bar. Anyone who already has a mortgage, or who has already applied for mortgage insurance, is exempt from the new rules, which will formally kick in on Oct. 17.

Affordable housing for middle class families has become a growing concern nation wide. These new rules will be set in place in order to support them.

How Will New Housing Market Rules Affect You

Here is a hypothetical of borrower Bob. Bob makes $125,000.00 a year.

If the purchase price of his was $685,500 he would have monthly payments of $2,959.30 at a current interest rate of 2.17%

But under the new rules, Bob could only qualify to buy a home for $514,125, or 24% less than before the new rules kick in.

Lenders are still willing to offer lower rates, but Bob would no longer be allowed to get it under the stricter rules, because his finances would be tested as though the mortgage rate is more than twice as high as it is in reality.

These charts suggest that Bob would still be able to pay his mortgage at a higher interest rate if his purchase price decreased by 24%.

If you are thinking about buying a house or would like to talk about the new housing market changes that will be occurring on October 17th, please contact us. We’d love to help you!

If you need help buying or selling your home please contact us at any time.