On October 3rd, 2016, Minister of Finance Bill Morneau announced four major changes to Canada’s housing rules. These changes mainly address concerns of foreign buyers investing in the Canadian market and middle class families carrying high debt ratios. Both have an impact on housing affordability and economic stability. Below are the said changes:
Change #1: Effective October 17, first-time buyers with mortgages insured by the Canada Mortgage and Housing Corporation will now undergo a more severe "stress test’ to ensure buyers can still pay for the loan even if the interest rates go up in the future. This means many consumers may receive smaller loans.
Change #2: Starting November 30, new restrictions will be imposed by the government on providing insurance for low-ratio mortgages. The new criteria will include an amortization period of 25 years or less, a purchase price of less than $ 1-million, a minimum buyer’s credit score of 600, and the property should be owner-occupied. This measure is targeted for the Vancouver and Toronto markets.
Change #3: New reporting rules for the primary residence capital gains exemption. For this tax year, although the capital gains tax is still waived, the sale of the primary residence must be reported at tax time to the Canada Revenue Agency. This measure is to prevent foreign buyers from flipping houses and falsely claiming the tax exemption.
Change #4: The government is launching a public consultation paper on a proposal for lenders, such as banks, to take additional risks in the event the insured mortgage goes in default, which could mean higher mortgage rates for buyers.