The single biggest winner in this upcoming election will absolutely be the homebuyer. I have never seen so much attention paid to the housing market in any political elections of any level than what we are seeing today. It’s literally going to be a #RealEstateBonanza.
Last week, the Conservative Party put down a proposal that, frankly, I was very impressed with. A ton of common-sense changes to the current mortgage policies and clearly a real focus on the current struggling home buyer. The Liberals clearly waited to see what the reaction was and have launched their own set of soon-to-be-broken-promises. (This isn’t a jab at the Liberals. All parties make huge promises and gambles and rarely do they all come to fruition). Let’s break down each proposal and see what it all means for you!
- Helping Renters Become Owners: The Liberals promise to invest $1B into loans that are squarely aimed at “Rent-to-own” borrowers. The aim is that you can get into a property and within 5 years are able to own it with your rent going towards the down payment. A lofty goal at best, and would need the help of developers to see the benefit of this idea. Remains to be seen if this will be any good or not.
- Introduce a “TAX-FREE-FIRST-HOME-SAVINGS-ACCOUNT”. Pretty cool actually! The Government will allow anyone under 40 to save $40,000 towards their first home purchase. They picked $40,000 because it is 5% of the average price of a home in Canada. (They forgot that they also set up a new, harder, down payment rule for any purchase over $500,000 and the $40,000 would not even be enough for the minimum down payment). This is a very cool product, though, if it works out. It’s like a TFSA but it’s not under the TFSA.
- You remember that very unpopular First Time Home Buyer Initiative? Well, the Liberals now promise that instead of the Government acting as a co-borrower, (and participating in the increased value of your property), this extra 5% down will now be seen as a repayable loan “at market rates”. This program they introduced never really took off and clearly they are trying to better it. A win for the borrower!
- Increasing the FIRST-TIME-BUYER TAX CREDIT to $10,000, from $5,000, which will help on your tax returns by a credit of up to $1500. Cool! Small, but cool.
- REDUCE the CMHC cost by 25%! That’s insane! Right now if you buy a home with 5% down, you pay 4% in CMHC insurance. A $500,000 purchase yields a mortgage of $475,000. 4% of $475,000 is $19,000. The Liberals are going to reduce the CMHC fee by 25% for “new” buyers. Still to be determined what this means, but, this is great!
- INCREASE the CMHC limit to $1.25M from $999,999.99 – and index it to inflation. This is a small step, but a big step. The Conservative Government want to increase the CMHC limit even further, but it’s nice to see the Liberals also realize that this artificial (and old) limit has to be increased. Boom!
- Build 1.4M homes. Yup, 30% more than the Conservatives promised. By “build” they mean, build, renovate or retrofit so that 1.4M new properties are available. This will be done via tax-credits, incentives and other means to getting to this lofty goal.
- Temporarily ban foreign ownership for the next two years and increase taxes on vacant properties and land that are owned by foreign buyers. Not a problem here, I honestly don’t care if we stop foreign buyers for 2 years until they figure out the problem.
- Potentially increase the down payment for investment properties from 20% down where it currently sits, but to a number that is vague. Meh, not so great but you can’t argue with the trend of hoarding real estate. They want to make it harder to invest in real estate, but I don’t think we’re going to see a major slowdown unless they make it 35% down.
- Establish the Canada Financial Crimes Agency and focus on money laundering. Yes! Absolutely! For sure we need to stop people from walking into casinos with $250,000 in cash, and walking out with a certified cheque that’s been “cleaned”. Hell yeah! Will it work? I don’t know, but it’s a good idea.
- You won’t be able to sell your house for at least 12 months from the time you bought it, unless you have had a change in your life circumstance. Hmmmmmm….
- Introduce a Home Buyers Bill of Rights which will include:
- banning blind bidding. As someone who has participated on both sides of the blind bidding process, I can tell you it sucks. I hate it. I’m not opposed to the Federal Government from trying to stop it. I just don’t know how they will be able to without major legal challenges.
- Establish a legal right to a home inspection. Perhaps they should create a better home inspection industry mandate? I’ve seen and heard some insane horror stories of purchases even WITH home inspections happening.
- Total transparency on the history of the home – great! Absolutely. The industry is going this way (albeit at a very slow pace)
- Ensure banks allow for up to a 6 month deferral in the even of job loss or other major life event.
- Require mortgage lenders to act in your best interest. This is where your mortgage broker comes in! We are great at giving you all the choice in the world and explaining all the nuances of your borrowing arc, including penalties, rates, lender conditions and of course the First Time Home Buyer initiative.
There are other nuances to this plan that are clearly aimed at anyone who wants to profit from housing, and aimed at helping those who want to get into the housing market. I don’t see anything about the stress-test, so that’s a major fail. I don’t see anything about longer-term rates being subject to lower stress-test, nor do I see anything about extending amortization to 30 years. A lot of this plan is “behind the scenes” stuff, but there are some great ideas here. I love the TFSAHSA, I love the reduction of CMHC costs and I love the increase of the CMHC limit to $1.25M. Overall, though, I would give this a B. What do you think of the policies? Follow me on TWITTER and let’s discusss!