Month: December 2017

20 Dec

MUCH ADO ABOUT ALMOST NOTHING–NON-RESIDENT OWNERSHIP OF HOUSING

Mortgage Tips

Posted by: MANJIT SINGH BHONDHI

Statistics Canada in conjunction with Canada Mortgage and Housing Corporation (CMHC) released their first report this morning from the Canadian Housing Statistics Program (CHSP), providing data regarding the non-resident ownership of Canadian housing. This program was mandated by the last federal budget, filling in a significant data gap in housing statistics. For years, many have speculated that foreigners were the major culprits driving housing prices into nosebleed regions in Vancouver and Toronto. Today’s release shows that non-residents own less than five percent of housing in both cities.
Immigration remains a significant driver of housing activity in Canada. Canada has the most robust population growth in the G7, three-quarters of which is attributable to immigration and foreigners moving to Canada will be of growing importance in the future. But the report showed that non-residents – defined as both foreigners and Canadians whose principal residences are outside of Canada, irrespective of citizenship – are not the primary cause of the housing affordability problem in Canada’s two largest cities.
Many have blamed foreigners– mainly the Chinese–for the sky-high prices that have surged in the past three years–pricing many Millennials out of the housing market. A voter backlash spurred provincial governments to introduce a 15% tax on non-resident buyers in Vancouver (August 2016) and Toronto (April 2017), though earlier available data showed that foreign purchases were only between 5 and 10 percent of all home sales. In both regions, the tax slowed housing activity mainly by changing psychology. New listings surged, and buyers became more cautious as their options improved with more supply and lower prices. Other measures to slow housing activity by government and financial institution regulators have led many to assert that “boomers have priced millennials out of the housing market.”

Data revealed that non-residents (individuals whose principal dwelling is outside of Canada) owned 3.4% of all residential properties in the Toronto census metropolitan area (CMA), while the value of these homes accounted for 3.0% of the total residential property value in that metro area. In the Vancouver CMA, non-residents owned 4.8% of residential properties, accounting for 5.1% of total residential property value.
Estimates of non-resident ownership varied by property type. In both metropolitan areas, non-resident ownership was more prevalent for condominium-apartments. Non-residents owned 7.2% of condominium-apartments in the Toronto CMA and 7.9% of these units in the Vancouver CMA. By comparison, non-residents held 2.1% of single-detached houses in the Toronto CMA and 3.2% of single-detached homes in the Vancouver.
Over the past decade, home prices have accelerated markedly in Canada’s largest urban areas, particularly in Vancouver and Toronto. Data from the Canadian Real Estate Association Home Price Index show prices increased 173.7% in Vancouver from January 2005 to November 2017, while they rose 145.0% in Toronto over the same period. The last three years have been particularly telling, with house prices in Vancouver increasing by more than 60% and in Toronto by more than 40%, triggering great concern about housing affordability.
Below are two infographics produced by Statistics Canada giving more regional detail on non-resident ownership in Vancouver and Toronto. Breaking down the metro regions by municipalities, across the Vancouver CMA, non-resident ownership was most concentrated in the City of Vancouver (7.6%), followed by Richmond (7.5%) and West Vancouver (6.2%). In the Toronto CMA, the shares of non-resident owned properties were most substantial in the municipalities of Toronto (4.9%), followed by Richmond Hill (3.6%) and Markham (3.3%).

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Largest Share of Non-Resident Ownership Is High-Price Condos
The most significant share of non-resident ownership in both CMAs was for condominiums, at 7.9% in the Vancouver and 7.2% in the Toronto. (See table below).
In Vancouver, almost two-thirds of non-resident owned properties were condominiums, while in Toronto, this share was close to half. Although the majority of condos were apartments, some were also single-detached houses, semi-detached houses and row houses.
Across the Vancouver CMA, 50.1% of condominium-apartments owned by non-residents were in the City of Vancouver, while 14.9% were in Richmond. In the Toronto CMA, non-resident owned condominium-apartments were primarily located in the City of Toronto (82.8%) and Mississauga (8.6%).
In the Vancouver CMA, the average value of a condominium-apartment owned by non-residents was 30.4% higher than that of a resident held condo-apartment. The City of Vancouver had the highest rate of non-resident ownership of condo-apartments within the CMA. The average value of these apartments was approximately $930,600, which was 25.6% higher than resident-owned.
The relative disparity between non-resident condo prices and resident condo prices in Toronto was much smaller than in Vancouver. In the Toronto CMA, non-resident owned condominium-apartments were on average 8.7% more expensive than resident owned. The City of Toronto had the highest concentration of non-resident owned condo-apartments in the CMA, which were on average valued at $439,000, or 7.6% more expensive than resident-owned.

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30646683-0026-44c1-b307-4588effb8193[1]Same is true for Non-Resident Owned Single-Family Homes–More Expensive Than Resident-Owned
For the Vancouver CMA, the average value of a single-detached house owned by non-residents was approximately $2.3 million compared with $1.6 million for resident held. These differences were most pronounced in the Greater Vancouver A subdivision, the City of Vancouver and West Vancouver. In Greater Vancouver A, single-detached houses owned by non-residents had an average value of nearly $8 million, while those owned by residents had an average value of $5.3 million. The average size of a single-detached house held by non-residents in this district was close to 4,800 square feet, 32.2% larger than the average size of single-detached dwellings owned by residents.
In the Toronto CMA, single-detached houses owned by non-residents were on average 12.3% or $103,500 more expensive than homes owned by residents. Differences in average values for single-detached dwellings were most marked in the municipalities of Markham, Richmond Hill and Toronto. In Markham, the average value of single-detached houses owned by non-residents was close to $1.1 million compared with $997,500 for resident owners. In Richmond Hill, non-resident held single-detached homes were, on average, valued at $1.2 million compared with $1.1 million for resident owned houses. In the City of Toronto, a non-resident owned single-detached house was, on average, valued at just over $1 million compared with $965,800 for a resident owned home. These differences, once again, are much smaller in the GTA than in the GVA.

Bottom Line: Non-residents represent a significantly more important factor in the Vancouver region than in the Toronto CMA, as expected. Moreover, non-residents purchase markedly more expensive properties compared to residents in Vancouver than in Toronto.
Wealthy Chinese nationals are a more significant factor in Vancouver than in Toronto, which has been the case for many years–not surprising given the geography. Moreover, many Chinese nationals began buying properties in the Vancouver CMA well in advance of the July 1997 handover of Hong Kong from the United Kingdom to China. Chinese have continued to find the Vancouver region an attractive haven for capital despite the imposition of capital controls in China.
Many are non-residents and have not rented their properties. In consequence, there are relatively more vacant properties in Vancouver than in Toronto. The Vancouver city council approved a tax on empty homes, the first of its kind in Canada, in early 2017, with the first payments due in 2018. Self-reporting owners will be assessed a one percent tax on homes that are not principal residences or aren’t rented for at least six months of the year. Though a similar tax has been discussed by the Toronto city council, to date, it has not had legs.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres

12 Dec

WHAT IS A CASH BACK MORTGAGE?

Mortgage Tips

Posted by: MANJIT SINGH BHONDHI

Every once in a while, a bank will advertise a cash back mortgage. It sounds great but there are a few things to consider.
When you purchase a home, you may find that you need some extra cash. You may want to renovate, purchase some furniture, or start on building a fence or landscaping.. Fortunately, some Canadian lenders offer mortgages that give you a cash back rebate when you take out your mortgage.
With a cash back mortgage, your lender advances you a cash lump sum when your mortgage closes. The most common sum you receive is 5% of your mortgage amount, but it’s possible to get between 1% and 5% depending on the lender you choose. Note that you receive these funds when the mortgage closes. The funds cannot be used for your down payment, however if you borrowed your down payment you could use the funds to pay back the loan.
This sounds like a great idea but there are some down sides to this type of mortgage. First- you will pay about 1.5% higher interest rate for the duration of the mortgage term. Usually this is a five-year term and if you take a look at how much extra interest you are paying you will find that it takes you five years to pay this sum back to the lender.
Another point to consider is that Canadians move on average every three years. What if you have to break the mortgage? In that case, you owe the lender the usual three months interest or Interest Rate Differential (IRD) as well as the balance of the cash back balance. This could be a very pricey move. If your lender allows it , it’s best to port your mortgage to your new home to avoid the double hit of the penalty and paying the cash back.
A cash back mortgage is a great option but it’s not for everyone. Be sure to tell your mortgage broker if it’s at all possible that you will have to move before your mortgage term is over so that he or she can advise you on what your penalties would be. If you have any questions, contact your local Dominion Lending Centres mortgage specialist.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional

11 Dec

IS IT TIME TO LOCK IN A VARIABLE RATE MORTGAGE?

Mortgage Tips

Posted by: MANJIT SINGH BHONDHI

Approximately 32 per cent of Canadians are in a variable rate mortgage, which with rates effectively declining steadily for the better part of the last ten years has worked well.

Recent increases triggers questions and concerns, and these questions and concerns are best expressed verbally with a direct call to your independent mortgage expert – not directly with the lender. There are nuances you may not think to consider before you lock in, and that almost certainly will not be primary topics for your lender.

Over the last several years there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion, very little of which has come to fruition other than in a very few localised spots and for short periods of time thus far.

Before accepting what a lender may offer as a lock in rate, especially if you are considering freeing up cash for such things as renovations, travel or putting towards your children’s education, it is best to have your mortgage agent review all your options.

And even if you simply wanted to lock in the existing balance, again the conversation is crucial to have with the right person, as one of the key topics should be prepayment penalties.

In many fixed rate mortgage, the penalty can be quite substantial even when you aren’t very far into your mortgage term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments, which in the case of 90% of variable rate mortgages is correct. However, in a fixed rate mortgage, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The ‘IRD’ calculation is a byzantine formula. One designed by people working specifically in the best interests of shareholders, not the best interests of the client (you). The difference in penalties from a variable to a fixed rate product can be as much as a 900 per cent increase.

The massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can mean significant downside.

Keep in mind that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, things like opting for a “cash back” mortgage can influence penalties even more to the negative, with a claw-back of that cash received way back when.

Another consideration is that certain lenders, and thus certain clients, have ‘fixed payment’ variable rate mortgages. Which means that the payment may at this point be artificially low, and locking into a fixed rate may trigger a more significant increase in the payment than expected.

There is no generally ‘correct’ answer to the question of locking in, the type of variable rate mortgage you hold and the potential changes coming up in your life are all important considerations. There is only a ‘specific-to-you’ answer, and even then – it is a decision made with the best information at hand at the time that it is made. Having a detailed conversation with the right people is crucial.

It should also be said that a poll of 33 economists just before the recent Bank of Canada rate increase had 27 advising against another increase. This would suggest that things may have moved too fast too soon as it is, and we may see another period of zero movement. The last time the Bank of Canada pushed the rate to the current level it sat at this level for nearly five full years.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, or breaking your mortgage to secure a lower rate, or any general mortgage questions. contact a Dominion Lending Centres mortgage specialist.

DUSTAN WOODHOUSE

Dominion Lending Centres – Accredited Mortgage Professional

9 Dec

RETURNING TO THE ‘A-SIDE’

Mortgage Tips

Posted by: MANJIT SINGH BHONDHI

Every year Canadian families are caught in unexpected bad circumstances only to find out that in most cases the banks and the credit unions are there (to lend you money) only in the good times, not so much during the bad times.

This is where thousands of families have benefited over the years from the services of a skilled mortgage broker that has access to dozens of different lending solutions including trust companies and private lending corporations. These short-term solutions can help a family bridge the gap through business challenges, employment challenges, health challenges, etc.

The key to taking on these sorts of mortgages is always in having a clear exit strategy, which in some cases may be a simple as a sale deferred to the Spring market. Most times the exit strategy involves cleaning up credit challenges, getting consistent income back in place and moving the mortgage debt back to a mainstream lender. Or as we would say in the business an ‘A-lender’.

The challenge for our clients, and for us as mortgage brokers, over the past few years, arguably over the past nine years, has been the constant tinkering with lending guidelines by the federal government. And the upcoming changes of Jan. 1, 2018 represent far more than just ‘tinkering’.

This next set of changes are significant, and will effectively move the goal posts well out of reach for many clients currently in ‘B’ or private mortgages. Clients who have made strides in improving their credit or increasing their income will find that the new standards taking effect will put that A-lender mortgage just a little bit out of reach as of the New Year.

There is concern that the new rules will create far more problems than they solve, especially when it seems quite clear to all involved that there are no current problems with mortgage repayment to be solved.

Yet these changes are coming our way fast.

Are you expecting to make a move to the A-Side in 2018?

It just might be worth your time to pick up the phone and give your Dominion Lending Centres mortgage specialist a call today.

We’re here and ready to help.

DUSTAN WOODHOUSE

Dominion Lending Centres – Accredited Mortgage Professional

1 Dec

GETTING ON THE PROPERTY LADDER

Mortgage Tips

Posted by: MANJIT SINGH BHONDHI

As property prices continue to rise across Canada, the conversation around “how to climb the property ladder” has made a subtle shift to “how to get on the property ladder in the first place.” Especially if you’re single.

Whereas before it was assumed anyone would qualify to buy a starter home (or condo), nowadays with increased housing prices and the government making it tougher to qualify for a mortgage through a financial stress test, becoming a homeowner isn’t a walk in the park. Qualifying for a mortgage on a single income is becoming increasingly difficult.

Unfortunately, just because you have a proven ability to pay rent on time doesn’t mean you will qualify to make mortgage payments in the same amount. So if you are looking to get into the housing market, but don’t qualify on your own, maybe you should consider co-ownership as an option!

So what is co-ownership anyway? Well, co-ownership is when more than one applicant takes on the financial responsibility of owning a property together. Co-ownership can take on many forms. Obviously owning a home with your spouse or life partner is the most common form of co-ownership, while having your parents co-sign on a mortgage is another. But for the sake of this article, let’s think past these arrangements.

Did you know that there are really no limitations with whom you can purchase a property? This is assuming they meet the lending criteria.
Maybe a brother, sister, cousin, neighbour, co-worker, friend, your mechanic, financial advisor, or some distant relative just happens to be looking to get into the housing market as well? There is a good chance that by combining your incomes together, you will qualify for a mortgage that neither of you would qualify on your own. Bringing someone else into the picture, or even a group of people, can significantly increase the amount you qualify to borrow on a mortgage. Most lenders will accept up to four applicants on a mortgage, while some lenders have even gone as far as launching products designed to make buying with friends and family easier. Buying a property with someone(s) in a co-ownership arrangement is becoming way more commonplace.

However, before making the decision to buy a house with someone, there is no doubt going to be a list of things you are going to want to work through. You will want to get everything out in the open and ask yourself questions like…

  • Do I trust this person?
  • Can I live with this person?
  • Am I comfortable making decisions about the home with this person?
  • How will conflict be managed when it arises?
  • What happens if either party runs into financial trouble?
  • What is the exit plan?

The more you work through ahead of time, the better chance you have at successfully co-owning a house with someone. A lot of people who purchase a property in a co-ownership agreement treat it like a business arrangement.
If you’d like to talk more about what this would look like for you personally, please don’t hesitate to contact a Dominion Lending Centres mortgage specialist. They can walk you through the process step by step and get you (and your partner in real estate) the best mortgage available to you!

KRIS GRASTY

Dominion Lending Centres – Accredited Mortgage Professional