September 24, 2020

Canada’s cooling off measures in realty pack a punch

Foreign buyers will feel particularly targeted after tax exemption removal

By Sabine Glai,

The Canadian real estate market has been a topic of hot debate over the last year. With Vancouver and Toronto residential property markets continue to be on an unphased upward trend, the Canadian government introduced new mortgage rules to cool things down.

Remaining up-to-date on the complexities of the property market and the resulting change to the regulatory environment in which the market operates is critical to success for investors in the Greater Toronto Area and other Canadian housing markets.

So what do the new rules look like and how will they affect first time-home buyers or investors? They came into effect October 17 and will reduce the purchasing power of both groups. Wider use of stress testing represents a significant change to borrowing requirements.

Prior to the change, stress testing was only used in certain market segments. In an attempt to ensure that loan payments would not be jeopardised by rising interest rates or changing financial circumstance on the part of the borrower, the government is now requiring stress testing on all insured mortgages. Insurance is required for mortgages where down payment is less than 20 per cent of the purchase price.

Additional stress testing will thus add the additional burden of proving financial stability in the face of changing economic conditions. Buyers in markets such as Vancouver and Toronto, the higher priced markets, will feel the impact of this change more so than others.

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