On January 17th, 2011 the federal government announced changes to regulations governing mortgage lending in Canada. The changes followed growing warnings from the Bank of Canada that Canadians are taking on too much household debt (we now have the highest household debt of 20 OECD nations). By making these changes, the feds hope to limit risky lending practices and protect Canadians from themselves.

There are three key changes to the mortgage lending rules:

1. 30 Years – The maximum amortization period available to consumers will be reduced from 35 years to 30 years (which had recently been reduced from 40 years). However, for those putting 20% or more down 35 year amortizations will still be available.
2. 85% – When refinancing, consumers will only be allowed to borrow up to 85% of the value of their home from the previous limit of 90% (which was recently reduced from 95%).
3. Lines of Credit – the government will no longer insure lines of credit.

The amortization and refinancing limit changes will take effect as of March 18th, 2011. Meanwhile, the line of credit change will be in place as of April 18th, 2011. You can still avoid these new rules if you have a pre-approval in place before these dates.

What it means for Vancouver real estate

I suspect that we will see these changes have an impact on the Vancouver real estate market. We can draw from the experience of the last round of mortgage regulation tightening announced in October 2009. Once those regulations took effect in May 2010, the real estate market did soften (sales stalled, but prices remained relatively steady).

I believe it’s likely that we will see a pick-up in activity a head of these rule changes and then a slight slowdown (in activity, but not in prices) after they get in place. Activity will resume as usual within a month or two.

I am expecting that 2011 will be a stronger year than 2010. Market activity will be heavier and prices will rise in the mid-single digits.

More Vancouver Real Estate Statistics

Want more info on Vancouver real estate? You can keep your fingers on the pulse of the market by following my updates on Vancouver real estate statistics. You won’t find this type of detailed information anywhere else.

Copyright © 2011 Vancouver Real Estate Blog by Sebastian Albrecht, Vancouver Realtor ”More Stringent Mortgage Rules Announced”

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Recently, there have been a couple of interesting articles about foreclosures in the media. Vancouver foreclosures can be a great opportunity in today’s real estate market. As a result of the current economic climate, they are also on the rise offering options to the patient buyer.

The law on foreclosures is different in each province. They range from being heavily in the lenders favour (Ontario), to being more protective of the borrower (Saskatchewan). The article uses an example of a West Vancouver businessman who is currently three years behind on payments of his $5-million mortgage…and still living in his house.

BC law is somewhere in between the two extremes of Ontario and Saskatchewan when it comes to foreclosures. In Vancouver, it means that when a lender attempts to foreclose on your property the courts will give you time to try and repay. The result is that it could take over a year for a home to be foreclosed upon from the time the process was initiated.

You can read the full article here.

If you’d like to receive regular updates on Vancouver foreclosures, go here and sign-up for my Vancouver foreclosure list. Or, if you’d like to learn how to avoid Vancouver foreclosure then check out this page

Copyright © 2009 Vancouver Foreclosures in the Vancouver Realtor Blog by Sebastian Albrecht, Vancouver Realtor with Royal LePage Vancouver ”How Vancouver Foreclosures Differ from the Rest of Canada”

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I wrote last week about how we are seeing the credit crunch (originating in the US but now expanding globally) affect us here on the local level in the Vancouver real estate market. There have been further developments in the last week on this issue.

First of all, I commented last time that the Bank of Canada had dropped the overnight lending rate by 0.5% but that the banks did not follow suit. Rather than drop by the full amount (the banks aren’t required to move in sync with the BOC but they do in practice), they moved only by half that amount and reduced the prime rate at most banks by 0.25%. However, due to public and political pressures most banks have subsequently reduced their rates by the full amount of 0.5%.

There are reports this morning (in particular, from the Royal Bank of Canada) that the Bank of Canada will likely lower it’s policy rate by 0.5% next week. This comes after BMO announced this morning that Canada is headed for a recession. Up to now, most experts were optimistic that Canada could avoid the economic tailspin coming out of the US but that is beginning to appear less likely.

A very direct result of the crisis has been the announcement yesterday of the bankruptcy of the Infinity Towers development in Surrey. This was to be a $350 million, five tower, 1,400 unit development. While Phase I completed, the two towers in Phase II have been halted in mid-construction while restructuring is sought.

It would appear that the primary cause for the bankruptcy is that the major funder of the project, Lehman Brothers, itself went into bankruptcy. The lawyer for the developer has been explicit in saying that the trouble is not related to cost overruns at all. This is directly related to credit drying up in the US.

Lastly, I also wrote last week about the demise of the variable rate mortgage (which isn’t entirely true…you can find ones that offer prime PLUS 1%). According to this article in the Financial Post, it would appear as though banks are putting pressure on customers to convert their variable rate mortgages to fixed rate mortgages. The banks are saying that they are losing money on the variable rate mortgages (whether they are discounted or not), but they deny they are putting pressure on customers.

In an environment of declining interest rates, now does not appear to be the best time to lock in your mortgage rate. If you have a discounted variable rate mortgage it would be wise to keep it there for the time being. If you locked your mortgage into a five year fixed rate mortgage you could be paying in the neighborhood of 2oo basis points (4.25% – 0.6% = 3.65% vs ~5.79%) more in financing charges.

Copyright © 2008 by  Sebastian Albrecht, Vancouver Realtor with Royal LePage Westside ”How the Credit Crunch is Affecting Vancouver Real Estate – Part 2”

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Last week the Bank of Canada lowered it’s overnight lending rate by -0.5%. Typically, Canadian financial institutions follow suit by matching the change in their prime lending rate. Instead, the Canadian banks lowered their prime lending rates by only 0.25%. The banks have essentially padded their own profits as a result. They are charging customers more for money that they are obtaining at a lower cost.

More interesting is what has been happening with the variable rate mortgage. Over the past few years this mortgage package has been one of the most popular options. Banks offered the flexible variable rate mortgage at a discount to the prime lending rate. Up to about a year ago, that discount was as much as -1.0%. Over the last year we saw that discount steadily shrink until it was recently down to about 0.3%.

Most banks quietly did away with any discount whatsoever (meaning customers would pay the prime rate with a variable rate mortgage) in the past week. Some financial institutions have actually done away with the variable rate mortgage altogether.

This is another indication of money becoming more difficult to come by. The already conservative Canadian banks are circling their wagons, refusing to take on risk and padding their profits wherever possible. Dropping the discounted variable rate mortgage is an indication that the banks feel that continued rate cuts are likely.

The silver lining here is that long term interest rates should also decline and thus the fixed rate mortgages should become cheaper for consumers. With house prices declining in Vancouver, and the cost of borrowing slipping as well, the investor and first-time buyer in Vancouver is in potentially a very profitable position. We just have less choice in the current marketplace when it comes to borrowing money.

Copyright © 2008 by  Sebastian Albrecht, Vancouver Realtor with Royal LePage Westside ”How the Credit Crunch is Affecting Vancouver Real Estate”

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I’m a bit late in referring to this, but I thought that it was better late than never. Last week, the Federal government announced that they were putting a halt to guaranteeing the 40-year and zero-down mortgages. They hope to avoid the type of housing crisis that we’ve seen in the US that’s been caused by their sub-prime mortgages.

Any of you that have ever spoken to me about mortgages knows that I don’t believe our two systems are comparable (US vs Canada).  In the US, their mortgage lending practices were far, far more liberal than our own. Even with the 40-year and zero-down mortgages that were introduced in recent years, our lending practices were by far more conservative.

Yes, increasing the amortization of mortgages and reducing the amount of equity a new owner must put down to own a property is not without risk. What these moves did was allow potential homeowners to stretch themselves a little further to purchase a little bit better home. I believe that most Canadians that used these products were doing so in order to take advantage of the flexibility that they allowed for, not as a means to enter into the market in the first place.

The new rules mean  that government backed mortgages will require a minimum down payment of five percent (no longer 0%), and will be restricted to a maximum amortization period of 35 years (no longer 40). The changes will take affect on October 15, 2008 so you have lots of time to still take advantage of the old ones for now.

The difference to the homeowner, with a $400,000 mortgage is that on a 35 year amortization they will be paying $81 more per month in mortgage payments than if it was a 40 year amortization.

With a cooling housing market across the country, this might not be the optimum time to make these changes. One could question the governments timing on the policy change. I don’t believe that these are significant changes that would price many people out of the market. However, the market can be fickle and who knows how this might affect market psychology.

Sebastian Albrecht, Vancouver Realtor with Royal LePage Westside

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On Tuesday, June 10th 2008 the Bank of Canada announced it’s decision to leave its target for the overnight lending rate at 3% and the bank lending rate at 3.25%. The Bank surprised most observers by leaving rates unchanged and cited concerns about rising inflation for this change in it’s policy (find the full press release here).

An article in the Globe and Mail (read the article here) today discussed the issue. Not only are mortgage interest rates expected to rise due to the shift in the Bank of Canada policy, but also because of the predicted rise in inflation. However, mortgage brokers interviewed in the article foresee only “modest” rises in the mortgage rates offered by banks to consumers.

CBC is reporting that on June 11th, 2008  banks are already making the move to raise interest rates (read the article here). Rates increased by as much as 0.5% for a posted five year rate.

Sebastian Albrecht, Vancouver Realtor with Royal LePage Westside

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On Tuesday, the Bank of Canada announced that it was reducing its key interest rate by a quarter point.

Because of sharp declines in Canada’s stock market and the increasing fears over the state of the US economy the Bank of Canada was motivated to cut its key interest rate on Tuesday for the second consecutive month.

The bank reduced its overnight lending rate from 4.25 per cent to 4 per cent in the hopes of minimizing the effects of a potential US recession. In December, the Bank of Canada cut its benchmark rate by a quarter point, marking the first reduction in more than three years.

The Bank of Canada also indicated that additional rate cuts were likely soon.

“Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to return inflation to target over the medium term,” the bank said in a statement.

This interest rate cut means cheaper borrowing costs for Canadians with variable rate mortgages, lines of credit and other loans with floating rates. However, fixed-rate mortgages are not likely to be affected directly as their rates are influenced primarily by movements in the bond market and not the Bank of Canada’s overnight rate. 

Rates on fixed mortgages have been fairly steady recently.  Even so, mortgage shoppers can’t go wrong with a mortgage pre-approval with a rate hold.  If rates drop, you’ll benefit from the new, lower rate.  If rates on fixed mortgages rise during the rate hold period, you still have your original lower rate.

Sebastian Albrecht, Vancouver Realtor with Royal LePage

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I find that there is a lot of confusion out there about what the Property Transfer Tax (PTT) is and who has to pay for it. With that in mind, I thought that I would try and clarify a few things.

The PTT is a tax imposed by the Provincial government on all transactions of property. The PTT should not be confused with Property Tax. PTT is a one time tax paid to the Provincial Government by the purchaser of real estate. Property Tax, on the other hand, is a tax paid annually to the local municipality. The PTT is 1% on the first $200,000 and 2% on the balance.

This tax is not imposed on EVERY transaction, however. Under particular circumstanes, First Time Homebuyers are exempt from paying this tax.

How can you qualify for an exemption? Good question…

1. You must be a Canadian citizen or permanent resident of Canada.
2. You must be the purchasing a principal residence.
3. You must not have previously owned an interest in real estate anywhere in the world.
4. You must have resided in the province of B.C. for at least one year (12 consecutive months) immediately prior to the application to register the purchase of the principal residence.
5. The maximum purchase price that will qualify for the exemption in Vancouver is $375,000 (A partial exemption is available for homes between $375,000.00 and $400,000.00).
6. Your down payment cannot exceed 30% of the purchase price (you must borrow at least 70% of the value of the property).
7. You will lose the tax exemption if you pay over $13,000 towards the principal of your mortgage within the first year.
8. The term of your mortgage must be at least one year.
9. The purchaser must occupy the property as their principal residence within 92 days of completion.
10. Other conditions do apply (review them here).

There are some other exemptions (aside from the one for First Time Homebuyers), such as the transfer of a principal residence within a family. You can review the BC Government’s handout on the First Time Homebuyer’s Exemption here.

Another good resource for more information is your lawyer or notary. I can provide you with reputable contact if you do not yet have one of your own.

More Info for Vancouver First Time Home Buyers

Are you a first time home buyer? Finding it hard to get the information that you need to make an informed decision in today’s real estate market? You’ll find the resources that you need tailored for you, the Vancouver First Time Home Buyer here.

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We’ve seen a dramatic rise in the lending rates on mortgages over the past month. In that time, there has been almost a full-percentage point gain. We haven’t seen that type of movement for a very long time.

 How is this affecting real estate in Vancouver? So far, there hasn’t been much of an affect that I’ve noticed on the market. Activity is as rabid as ever. However, given that last month saw the average house price in the city reach a new high, as well as a traditional summer slowdown coming, I wouldn’t be surprised to see the new mortgage rates temper price gains a little bit.

Predicting the future in the Vancouver real estate market is a very tough job, though. Many have been predicting an adjustment for years now and they continue to be proved wrong.

These rises in mortgage rates bring home an important point. It’s critical to get your mortgage pre-approved when you begin the homebuying process. Have the lender secure your interest rate (this can often be done for 90 – 120 day periods) while you look for your new home. If rates rise before you purchase your home, you’ll get the benefit of the lower interest rate you secured weeks or months earlier. If they drop, you can pick up the new rate.

If you need help finding the right lender, bank or mortgage broker I would be happy to help. I have numerous contacts that will be able to help you find the right mortgage at the right price.  

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