New rules for rental properties could squeeze first-time homebuyers
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Posted on: 05-04-10 12:30:10
http://ca.news.finance.yahoo.com/s/03042010/2/biz-finance-new-rules-rental-properties-squeeze-first-time-homebuyers.html
New rules for rental properties could squeeze first-time homebuyers
Sat Apr 3, 11:17 AM
Derek Scott, The Canadian Press Email Story IM Story Printable View
By Derek Scott, The Canadian Press
VANCOUVER, B.C. - Buying a house in the hot housing markets of Vancouver, Toronto and other major cities in recent years has been a possible dream for some first-time homebuyers only because many of those houses had suites they could rent out.
But new rules coming into effect April 19 will all but wipe out that advantage in the eyes of banks handing out mortgages.
\"It makes it much more difficult for people with rental properties to qualify for their own mortgage on their personal residence,\" said Vancouver mortgage specialist Patrick Mulhern.
The new regulations are designed to prevent speculation in the market, said Jack Aubrey, of the Canada Mortgage and Housing Corporation.
But Vancouver mortgage agent Mike Averbach said the new rules will do little to prevent investors from gambling in the housing market.
\"They haven't decreased risk,\" he said. \"They're just not allowing you to use the income.\"
Currently, landlords can use 80 per cent of their rental income to offset monthly mortgage payments. That means, if they receive $1,000 per month in rental income, they can use $800 to offset a $1,200 mortgage payment, leaving only $400 to be debt financed.
But under the new rule, only 50 per cent of a landlord's rental income will be used. Even then, that money will not be used to offset their monthly mortgage payment. It will be added to their total income, forcing them to qualify for the entire monthly mortgage.
For instance, a person earning $100,000 per year in regular income plus $12,000 per year in rental income will have a total income of $106,000 with which to qualify for a mortgage on their own home.
Rental income is essential for many of his clients, Averbach said.
In cities like Vancouver, where the average home price in February was more than $662,000, rental offset is the only way many people can qualify for a mortgage and the new rules will keep many of his clients in condos rather than houses, he said.
\"Putting a renter in your basement is not speculative, it's reality,\" he said. \"It helps you pay your mortgage.\"
The rule changes also make it more difficult for people to buy a property separate property to use as a revenue generator.
CMHC will no longer offer high-ratio financing on rental property not lived in by the owner. That means someone looking to buy a house as a rental investment will have to come up with a 20-per-cent down payment on the property, as opposed to five per cent before the rules changed.
The changes haven't worried groups advocating for tenants.
Jeordie Dent, of the Federation of Metro Tenants' Association in Toronto, where vacancy and availability rates have dropped over the last year, said he doesn't see a negative impact on renters.
Instead, he said his group welcomes the changes.
Dent said too many people become landlords without the financial or intellectual wherewithal to properly manage their properties.
\"Anything that strengthens mortgage rules, from our perspective, is a good thing.\"
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Sunny Leone a true Canadian DESI now back in India !.
This puts a damper.
The interest rates being so low, the speculation heated up and people started to buy properties, for rental business. The basement apartment provided a relief. See the mentality of these bankers, they do not want to see the smart ones move ahead and prosper. Now they are changing the rules of the games through the CMHC, to hit the common man. They are increasing the initial outlay to 20%, from 5% That puts a damper on the housing sales, especially when the interest rates are low.
This tightening of the screws has been the way all through the mortgage history. They say the cost of living is getting to be high and the index is moving ahead of their game. Rents will increase, so, people will not be able to afford the spiraling of these. But the BANKS will not reduce the interest rates charged, they want to maintain their profits, but the common man cannot get a mortgage to acquire a business property at a lower rate and move ahead. The overnite lending rates have been low and will stay the same for the banks and the BEBoys......
Now the favourites will move ahead and not the others or the new comers. You got to have Blue Eyes to prosper in this land.
Freddie.
Quote:
The interest rates being so low, the speculation heated up and people started to buy properties, for rental business. The basement apartment provided a relief. See the mentality of these bankers, they do not want to see the smart ones move ahead and prosper. Now they are changing the rules of the games through the CMHC, to hit the common man. They are increasing the initial outlay to 20%, from 5% That puts a damper on the housing sales, especially when the interest rates are low.
This tightening of the screws has been the way all through the mortgage history. They say the cost of living is getting to be high and the index is moving ahead of their game. Rents will increase, so, people will not be able to afford the spiraling of these. But the BANKS will not reduce the interest rates charged, they want to maintain their profits, but the common man cannot get a mortgage to acquire a business property at a lower rate and move ahead.
Smart money already made and left money from RE in Canada or they bought at right time. If someone is buying house or investment property for just low monthly payment and renter's income and no room for future interest rates, maintenance and taxes which can go in one direction is not a smart move. Free and competitive market is a great tool to eliminate incompetent business, people and their decision. But too much govt. intervention creates more problem and we will see soon in Canadian RE when tax payers (CMHC) are co-signing the mortgage with buyers. Govt made everyone feel that owning a home is a human right but not a privilege which comes with great financial discipline in life.
Most people make mistake in panic mode or when they are scared. They follow the sheep mentality and get mass result. We always talk but very few follow: Buy when everyone is selling (USA mode) and sell when everyone is buying (Canada mode).
Quote:
Now the favorites will move ahead and not the others or the new comers. You got to have Blue Eyes to prosper in this land.
There are lots of Blue/black/green eyes people (born in North America) who are doing worse than immigrants. Whom can they blame?? I think Indian immigrant generally do better in North America. We are one of the highest earning/saving and well educated community in North America. Bad and good financial decision does not discriminate.
