VERICO NEWSLETTER – JUNE 2018

Government Policy is Hurting Affordability
For years a headline story has been the increasing level of personal debt, which has now reached $1.70 for every dollar of disposable income.  The latest numbers show that Canadians have $1.53 trillion in mortgage debt. For many rising mortgage rates will be a problem.
 
In April, a MNP survey found that 25% of Canadian mortgage holders were already feeling the strain of higher rates. This is consistent with an IPSOS survey done in October after the first two interest rate hikes. At that time 42% of respondents said they couldn’t afford an additional $200 a month in expenses with 70% saying they were already curtailing their spending.
 
The latest increase in rates will mean more than $200 in extra monthly expenses for a good percentage of mortgage holders when they renew. That’s on top of higher gas prices, increased carbon taxes in BC and Alberta, higher car insurance rates in BC, property tax increases in every major urban centre and other mandatory cost increases from governments across the country. 
 
A significant number of mortgage holders will be forced to cut back discretionary spending, including retail, the auto sector and restaurants. This is one reason that the Bank of Canada’s forecasts economic growth to slow to 1.9% this year and hit only 1.5% in 2019. 
 
The impact of higher mortgage rates will extend far beyond first time buyers given that 47% of Canadian mortgages have to be renewed in the next 12 months.  Only 22% of current mortgages are for 3 years or longer, which means that 78% of Canadian mortgages must be refinanced – and it will be at higher rates.
 
For more information about your mortgage and how these changes will impact you, contact me.
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Stress Test Best Practices Tool Kit

With the new Office of the Superintendent of Financial Institutions stress test rules firmly in place since January, Canadian homebuyers have learned they need to arm themselves with practical information on how they can ensure they are “stress-test ready”.

The following is a guide and best practices tool kit for those about to embark on securing their new or next mortgage:


Make a financial plan

Any time a big purchase is at stake, laying out a financial plan is always the best first step to take. By creating a plan, home buyers can protect themselves from increased interest rates and ensure they are staying on budget.


Have a contingency fund

Without question and now more than ever, home buyers need to establish contingency funds. It’s incredibly important to have funds set aside when unexpected costs such as property repairs arise. An established contingency fund also looks good to financial lenders.


Pay off debts and increase downpayment

The most important tool in the Best Practices Tool Kit is to pay off debts as quickly as possible and maximize your down payment. If you already have a mortgage, increase the frequency of payments by taking advantage of what the financial institution offers such as accelerated bi-weekly payments.


Broaden search parameters

Although you may have an ideal neighbourhood in mind, it is important to also consider broadening those search parameters. Often there are homes in other neighborhoods that could be a perfect choice if you are willing to commute a little longer.


I’m here to help you

I can help you to navigate confusion surrounding the stress test. Ultimately, being stress test ready means being ready for future increases in rate so that you can afford your next home comfortably on your budget.
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VERICO NEWSLETTER – MARCH 2018

Mission Accomplished: The Fall of Real Estate

Governments at all levels have been relentless in their efforts to reign in real estate – the top industry in 7 out of 10 provinces. Just think of how hard they’ve worked.
In February, 2016 the former Liberal government in BC increased the property purchase tax on homes over $2 million (impacting the vast majority of single detached homes in Vancouver). They then followed up with the introduction of the 15% foreign buyers tax for residential properties in Metro Vancouver.
The Federal government followed up with new rules for insured mortgages. Not to be outdone the Ontario Liberals introduced a 16 point plan to cool the market. Some might say “derail” the market. And finally the Federal government extended the new stress test rules for every mortgage application.
Judging by the recent headlines governments got their wish. 
Canadian real estate prices see biggest drop worldwide – MacLeans, Jan. 29, 2018
Canadian Real Estate Prices Are Fastest-Falling In World, According To U.S. Fed – Huffington Post, Jan. 31, 2018
Canadian home sales, listings slump in January with arrival of new mortgage rules – CBC News, Feb. 15, 2018
Canadian Home Sales Hit Lowest Level in 3 Years – Toronto Star, Feb 15, 2018
The Canadian Real Estate Association just reported that three quarters of the Canadian market experienced a slump as January sales declined 14.5% compared to December. Toronto sales led the way down with a 26.6% drop while even Vancouver experienced a 10% fall. Although the results are not surprising given the number of people who rushed into the market in December in order to avoid the new stress test rules but sales were still down 2.4% nationally compared to a year earlier.
Toronto’s decline, which the city’s real estate board blames on the Ontario government’s actions, continued in January with sales off 22%.  While some of the decline is attributed to the December rush it’s noteworthy that it’s the weakest showing in the last nine years.
 
 
7 simple tips to help you avoid take-out temptation
(NC) After a long day, the thought of putting in overtime in the kitchen can be quite unappealing.
“Ordering takeout can be a time-saver, but it’s expensive and typically less healthy than homemade meals,” explains Tori Wesszer, registered dietitian. “Prepping meals ahead of time means I can save dining out for indulging at restaurants I love, without the guilt.”
Wesszer recommends the following tips for fool-proof meal planning:
  • Freeze Florida Orange Juice in ice cube trays. Add cubes to a smoothie for added vitamin C and a natural sweetener with no added sugar.
  • Layer those salads. Make salads a few days at a time in mason jars. Layer your ingredients with dressing on the bottom to eat better and save money.
  • Make leftovers. Cook some extra at dinner to pack for lunch the next day.
  • Batch cook. Make foods like grains in large amounts ahead of time so you can have lots on hand for later.
  • Pre-cut your veggies. Wash and dice veggies that you use often ahead of time and you’ll have no excuse to skip your greens.
  • Freeze the rest. If you make a lasagna or chili, make double and freeze half to pull out on nights when you know time is limited.
  • Stock up on healthy kitchen staples. Keep items like canned beans and frozen veggies to pull a meal together in a pinch — a well-stocked pantry is essential to eating well.
  • Organize with apps. Use apps like Wunderlist to plan your groceries. You can even share it with someone to help keep you organized and avoid buying doubles.
Find more recipes at www.floridajuice.com/ca.
www.newscanada.com
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FEBRUARY 2018 – PCM NEWSLETTER

Now that Canada’s new mortgage stress test rules have been in place since January 1, arming home buyers with a best practices tool kit is in order.

Introduced by the Office of the Superintendent of Financial Institutions (OFSI), the new stress test requires the qualifying rate for an uninsured mortgage to be the greater of the Bank of Canada’s benchmark rate or the rate homebuyers negotiate with their financial institution plus two percentage points.

Financial experts across the country are making recommendations that start with ensuring your timing is right for the mortgage plans you have in mind. For example, some contracts that may have been signed prior to January 1 of this year may still fall under the old rules. This would include purchases made prior to January 1 even if the closing date falls after January 1, however the purchase offer in these instances must be considered firm.

Canada’s financial advisors are also recommending potential home buyers look to clear their debts before they start shopping for a mortgage. This would be one definitive way to ensure the new stress test rules don’t disrupt home-buying plans.

Those who took advice to lock down a mortgage pre-approval prior to the start of 2018 and received an exemption to the rules with the idea they would buy a home within 120 days of being pre-approved now need to contact their mortgage broker. Analysts are recommending this group work with a broker and pay close attention to the fine print, so they have a clear understanding of the 120-day deadline and what all will be required to meet it.

Finally, analysts also caution owners who already have a mortgage. If you want to switch lenders at renewal, you will have to requalify under the new stress test. This is also a perfect time to review your financial and mortgage plans.

Contact me if you are unsure how the new stress test will impact your long term home financing plans.

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NOVEMBER 2017 – NEWSLETTER

A tug of war: Affordability vs Protecting Banks

The following is an excerpt from the VERICO Economic Report written by Michael Campbell
In the tug of war between affordability and protecting the banks, as the new stress test rules remind us, the government has come down clearly on the side of the banks. Remember the good old days when only insured mortgages were subject to the stress test – as you know, now it’s everybody.
Effective January 1st, 2018, everyone will be subject to the new rule that dictates that anyone applying for a mortgage, even those that require an uninsured (80% LTV or less) mortgage, must qualify under one of the following rules, whichever is higher: (1) as if the rate was 2% higher than the “contract rate” or (2) using the Bank of Canada “Benchmark Rate”. That is unless they are borrowing from a credit union. In a twist that has not been explained, Credit Union mortgage applicants are not subject to the new stress test rules.
The banks are going to be especially happy with the provision that dictates that those people who are renewing their mortgage will not be subject to the stress test as long as they stay with their current lending institution. However, if they want to transfer their mortgage at renewal to a different lender (i.e. they found a better rate elsewhere), excluding a Credit Union, they will now be subject to the new stress rules, no matter what their LTV is. Banks will no longer need to match rates with other institutions for existing customers.
The percentage of buyers who are going to be priced out of the market by the new eligibility rules remains to be seen but the consensus seems to be in the neighbourhood of 15 to 20% but not all markets will be impacted equally. Given there is no change for people putting down less than 20%, high priced markets like Vancouver and other major urban centres may not be as effected as some smaller markets.
The bottom line is that many people who, up until now didn’t need insurance, will now only qualify for a smaller mortgage thereby limiting their buying choices. Of course, they could always move to Windsor or Moncton, which Century 21 Real Estate says have Canada’s least expensive homes – 90% lower than Vancouver based on price per sq/ft.
The immediate impact of the news rules will be that many people will be scrambling to get approved before the new stress test comes into affect on January, 1st.

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