Taxes Paid When Buying A Home Are Unbelievably Unequal Across Canada, Data Shows
Buyers in the priciest markets also face the highest land transfer tax rates.
by Daniel Tencer
What costs more than $20,000 in Vancouver and just $239 in Edmonton? The tax you pay when buying an average home.
Residents of Toronto and Vancouver, already saddled with the highest housing costs in the country, also face the highest tax rates on their home purchases, along with Quebec City, a new study has found.
In Toronto — the only city with both provincial and municipal land transfer taxes — a repeat homebuyer would spend $25,162 on the transfer tax for an average-priced property, a tax rate of 3.1 per cent. First-time buyers qualify for a rebate, and would spend $16,687 for a tax rate of 2.1 per cent.
Either way, that's the highest land transfer tax rate in the country, according to research from real estate site Zoocasa. Compare it to a pocket-change $239 "title transfer fee" for an average house in Edmonton. The taxes you pay when buying a home are basically a postal-code lottery.
In the priciest cities, "you're looking at tens of thousands of dollars in closing costs," said Penelope Graham, managing editor at Zoocasa. "And that's a cost that can't be mortgaged, it has to be paid in cash."
Graham says that for buyers in Toronto and Vancouver, the additional cost of the land transfer tax can mean years of additional savings — during which the cost of the house you're trying to save up for could rise further.
"The bottom line is, it's an income generator" for government, she said, noting that Toronto's municipal land transfer tax (MLTT), introduced in 2008 under then-mayor David Miller, brought in some $800 million in revenue in 2017.
The city of Toronto notes its municipal land transfer tax has seen "tremendous growth" as house prices soared in the city in recent years.
Some fear cities may be becoming too reliant on this source of revenue that rises and falls with house prices. Graham says she has heard concerns that Toronto is becoming "too dependent on the MLTT and it makes the city vulnerable if housing prices should crash."
For Kris Sims, the British Columbia director of the Canadian Taxpayers Foundation, the huge land transfer taxes buyers face is just one sign that governments are taking the wrong approach to tackling the affordability crisis.
"It's one of the reasons why Vancouver is facing a housing crisis," she told HuffPost Canada by phone.
"All land transfer taxes do is "jack up the price of a house. And if you ask politicians why they're doing it, they say it's to help (pay for) affordable housing. Which is nonsensical," she argued.
In an effort to slow down wealthy domestic and foreign investors from driving up house prices, both the B.C. and Ontario governments have introduced policies that include additional new taxes on property.
A tax won't stop those wealthy buyers, Sims says, "but it will jack up the cost for a legitimate realtor or developer, who will transfer that cost on to future tenants or future buyers."
Recent evidence, however, suggests that there has been a notable decline in foreign-buyer interest in Toronto and Vancouver since foreign buyers' taxes were put into place in those cities, while attention has shifted to Montreal, Ottawa and other markets.
Nonetheless, the sales slowdown in the housing market this year has not yet resulted in an improvement in affordability. A recent report from Royal Bank of Canada found housing affordability deteriorated to its worst level in decades at the start of this year.
Echoing the arguments made by realtor groups and developers, Sims says governments should focus on increasing the supply of housing in those cities. She cites real estate insiders who say growing red tape means it now takes five years to develop a new residential property in Vancouver.
"It's at a snail's pace for actual housing supply," said Sims, who rents her Vancouver-area home because "for many working people in Vancouver ... home ownership is just out of the question. Forget it."
7 in 10 Canadians expect interest rate hikes over next 12 months
by Paolo Taruc 12 Jul 2018 MBN
A broad majority of Canadians (72%) expect a rise in interest rates over the next 12 months – but just a little over half (54%) would opt for a fixed rate mortgage if they were to sign papers today, according to a new CIBC poll.
The results stand in contrast to the current composition of mortgages among homeowners polled, as 77% of them have a fixed rate mortgage.
Some 19% of Canadians would select a variable rate mortgage, while over a quarter (26%) are undecided about which type they would choose, However 83% of the respondents said they prefer “predictability and stability over risk” when it comes to their finances.
"Most Canadians believe a fixed mortgage is the way to go – especially those in the early days of paying down their mortgage or juggling household expenses," said Tracy Best, CIBC senior vice President, mobile advice, said.
"Conversely, for those considering a variable mortgage, they may benefit from a lower rate initially but also need to be comfortable that rates may change, potentially several times, over the course of the mortgage. If rates go up, they need to ask themselves how that might impact their lifestyle and financial health,” she added.
Further data showed Canadian homeowners on average are still carrying about $170,000 on their mortgage. That average balance jumps to $252,000 among higher income earners making more than $100,000 a year.
Related stories: Indebted Canadians exhibiting increased optimism - poll
First-time homebuyers coming out of woodwork
by Neil Sharma 04 Jul 2018 MBN
The spring season may be the busiest time of year in the real estate industry, but the consensus in the Greater Toronto Area that this year’s expected frenzy simply didn’t materialize.
In fact, it was downright underwhelming.
However, according to Tribe Financial Managing Partner Frances Hinojosa, while spring was fruitful for her team, it’s about to get better for everyone.
“We’re noticing a lot of first-time homebuyers now are coming out of the woodwork,” she said. “They’re realizing that despite the negativity out there in the media, there are still opportunities for them to purchase. We’re getting a lot of inquiries from first-time buyers exploring their options.”
Moreover, says Hinojosa—a 25-year veteran of the mortgage industry—she’s seen similarly staid markets before and recognizes the pattern.
“Talking with our referral partners—real estate agents and other spheres of influence—there is no shortage of people out there, and we’ll see a busy second half of the year. I think consumers have gotten used to the rule changes, and I feel as though, talking with our centres of influence, they don’t have a shortage of buyers. They only have shortage of inventory. I’ve seen this market before in my 25 years and I’ve seen the pendulum swing back, in terms of buying and selling.
“Overall, for the spring market, or any market, it has shifted based on the data out there, but there are still opportunities. I’ve been doing this for well over 25 years; it doesn’t matter whether there are stormy clouds ahead. You have to think about where the opportunities are. Shift your mindset and find the opportunities on the horizon.”
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Income misstatements on the rise
by Neil Sharma 2018 MBN
According to a study of Canada Mortgage and Housing Corporation-insured mortgages, Canadian house hunters aren’t being truthful on their mortgage applications—and brokers are not to blame.
CMHC determined prospective homebuyers bloat their reported incomes far more often than they do with the Canada Revenue Agency. According to the Financial Post’s Haider Moranis Bulletin, it’s likely because mortgage fraud hasn’t shaken the foundation of the country’s financial system like it has south of the border, which spurred inquiries. Moreover, it is not clear how much fraudulent statements affect mortgage default rates.
The CMHC report by Kiana Basiri and Babak Mahmoudi juxtaposed potential income misstatements from first-time homebuyers with incomes reported to the CRA between 2004 and 2014 and concluded markets with affordability challenges had higher misstatements. Also perhaps not surprising, the report noted a correlation between higher default rates and income misstatements.
But there was insufficient evidence that mortgage brokers are responsible for income exageration. While it’s sometimes believed that brokers shirk their duties by ignoring borrowers’ Beacon scores, the study concluded that income misstatements are not higher among mortgages originated by brokers.
First-time homebuyers, equity-poor as they are, usually pay for down payments through a confluence of their savings, loans and gifts—but they struggle to do so. Because commercial banks demand 20% down while CMHC insures mortgages with as little as 5% down, the latter is a popular option. However, where the incidents of misstated incomes rose, so too did arrears.
Canada-wide, only 11,520, or 0.24%, of all mortgages were in arrears. The Canadian Bankers Association notes that’s a good thing, because during the apex of the American housing crisis, foreclosures hit 2.2%.
Curiously, as of February 2018, Saskatchewan—at 0.78%—leads all provinces in arrears, while Ontario and British Columbia have mortgage arrear rates of 0.1% and 0.15%, respectively. Provinces without pronounced housing affordability problems had the highest arrears rate.
Nevertheless, the study highlighted two areas of positivity: The chasm between the incomes reported to CMHC and the CRA is not very wide, and when housing prices escalated, falsified income statements did not.
Economy shows the time is right for interest rate hikes - BoC's Poloz
by Ephraim Vecina 29 Jun 2018 MBN
Bank of Canada Governor Stephen Poloz stated that the economic “big picture” at the moment warrants a gradual increase in interest rates, especially since these rates are still hovering at historically low levels.
Poloz said that he is expecting to continue raising interest rates due to inflation already reaching the BoC’s 2% target. He didn’t provide a specific timing or pace of any possible hikes, however.
The central bank added that intensified trade uncertainty due to recent political developments does not deter its predictions. The BoC stated that it will take into account only concrete factors such as the U.S. steel tariffs and the Canadian government’s retaliatory measures in deciding upon future interest rate movements.
“We’re data dependent, not headline dependent,” Poloz told Bloomberg. “We’re not going to make policy on the basis of political rhetoric or any of that.”
“We’ll ensure that that is a gradual process because there are certain issues that we must monitor along the way, and we’ve laid those out.”
The central bank’s governor emphasized that GDP for Q1 2018 came in exactly as the bank’s predictions have indicated. He also said business investment remains “reasonably robust.”
Poloz’s policy decision is scheduled for July 11, and investors have placed 50-50 odds of a hike next month.
Retirement ain't what it used to be
by Neil Sharma 20 Jun 2018 MBN
Dregs of the Great Recession are still being felt.
A growing number of Canadians are retiring with mortgages because of the hardships they endured during the economic crisis a decade ago.
“They had RRSPs or other investments, and they [had] all that potential compounding interest, so if they had invested $100,000 and still had that principal $100,000 after the crash, they were considered lucky,” said Huong Luu, a real estate coach, consultant and independent mortgage agent.
“From a real estate investment point of view, a lot of individuals who purchased on appreciation lost their shirt from the economic crash. A lot of them purchased preconstruction, new development, new properties all under the assumption that appreciation would be there. They overleveraged themselves financially and when the crash came they couldn’t make their payments, so they declared bankruptcy or sold their properties at half the price, or walked away altogether.”
In addition Great Recession aftershocks, another reason Luu says a quarter of Canadians are carrying mortgages into retirement is because their adult children need a leg up.
“A lot of retirees don’t feel like they can retire. They took a big hit and work past age of retirement because of it,” she said. “What you’re seeing now is an increase in retirees who will refinance under a CHIP Reverse Mortgage. It’s not just the economy faltering that created this 25%; a lot of these retirees feel an obligation to help their children, so they pull money out of their equity and increase debt load on their property to help. Then they help their children buy their property, or do some investments with their children.”
Broker Corinna Smith-Gatcke of The Mortgage Advisors in Brockville indicated that retirement isn’t quite as arduous in her neck of the woods—only 10.2% of households with persons 65 years old and over are carrying mortgages—but concedes retirement isn’t what it used to be.
“It’s just a sign of the times,” Gatcke-Smith said of retiring in debt. “People are extended, so they’re working longer and later in life to service their debt.
“In a larger centre, I think it’s almost unavoidable. In places like the GTA and Vancouver, how do you save enough for a down payment when housing is going for over a million dollars? It changes the landscape for first-time buyers, but in my market you can still buy a house for under $200,000 and parents can give a $7,500 down payment without breaking the bank.”
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Is Canada's household debt spree winding down?
by Ephraim Vecina 18 Jun 2018 MBN
With latest numbers from Statistics Canada showing that the national debt-to-disposable-income ratio has declined by the greatest amount on record in Q1, analysts argued that this marks the beginning of Canadian households’ decreased dependence on debt.
The ratio went down to 168% in the first quarter of 2018, from 169.7% in the previous quarter. The 1.7% decline was the largest in record dating back to 1990. Disposable income grew by 1.3%, and credit-market debt increased by a miniscule 0.3%. Mortgage borrowing declined by $2 billion (down to $13.7 billion) quarter-over-quarter.
Statistics Canada also noted that Canada’s latest housing price index stood flat in April, with Toronto exhibiting its first annual decline since 2009.
“[This slack] will give the Bank of Canada breathing room to maintain a gradual pace of tightening,” Toronto Dominion Bank senior Canada rates strategist Andrew Kelvin told Bloomberg.
Read more: Canadian households increasingly relying on debt to stay afloat – study
However, the Credit Counselling Society was unconvinced that a significant portion of the market is already weaning itself off debt, as many households (almost 47% of Canadians) are still living paycheck to paycheck.
25% of Canadians recently polled by the organization indicated a belief that they would not be able to shell out $2,000 within a month during an emergency.
“Canadians have not taken sufficient steps to address and improve their overall financial wellbeing” Credit Counselling Society president Scott Hannah said.
“With tariffs being placed on goods from both sides of the border, we are not only concerned about the ramifications for the industries and employees impacted by these tariffs, but for Canadians in general who will feel the pinch to their pocketbooks as a result of long-term consequences of a drawn-out trade war.”
Related stories:
CMHC Q1 report reveals arrears rate
Progressive Conservatives decry B-20, push for study to examine effects
by Neil Sharma 13 Jun 2018 MBN
The Progressive Conservatives’ Deputy Shadow Minister for Finance has proposed creating a subcommittee to study B-20’s impact in a bid to have it overturned.
According to MP Tom Kmiec, the Liberal Party acted callously by subjecting Canadians to the mortgage stress test.
“The new stress test is going to block up to 60,000 Canadians from being able to buy a home,” Kmiec told MortgageBrokerNews.ca. “About 100,000 Canadians will probably fail the stress test and won’t be approved to borrow from a federally-regulated lender and that will push them to the unregulated lenders. We know from a CIBC Capital Market report that 47% of all mortgages need to be refinanced in 2018. In the year they knew there would be so many people refinancing, they still imposed the stress test. That was irresponsible and unfair.”
This is the second time Kmiec has proposed studying the mortgage rules after the first motion was voted down, however, he’s willing to play hardball this time.
“I will not approve travel of the committee until such time as we approve a study on mortgages,” said Kmiec. “I’m being reasonable—I’m willing to make amendments to my motion, I want to be collaborative, and that’s why I’m suggesting we make a subcommittee. I think it’s very reasonable. A home, whether it’s a townhouse, a condo or a detached house, is the most important financial decision a Canadian will make, and likely the biggest financial asset they’ll ever purchase. Therefore, it’s totally reasonable to look at this and I’m going to keep pressing.”
Kmiec says that his constituency in Calgary Shepard is replete with homeowners unable to requalify and who are stuck with lenders pushing 100 basis point increases. None of their stories surprise him, though.
“It’s important for the committee to look at the stress test because a report of theirs from a few years ago said the government should help first-time homebuyers and not introduce one-size-fits-all policy.
“If the problem is with indebtedness of Canadians, why are they making it more difficult for them to keep the homes that they’re in, especially for high-ratio mortgages, which also face the stress test. Those people put down more than 20% on their homes, but now the government is making it more expensive for them to carry their mortgages. That’s not just unjust and unfair—that’s bad policy making.”
Mortgage Outlet’s Principal Broker Shawn Stillman doesn’t believe Kmiec will be successful in imploring the Liberals to study the mortgage rules simply because it’s Politics 101.
“It’s unlikely he’ll be successful because government doesn’t like giving any credence to the opposition,” said Stillman. “They could have the best answer but they’ll never say ‘You’re right.’ If they believed it was an issue, they’d say ‘no’ to his suggestion and bring up their own motion a few weeks later.”
Also unlikely, he added.
“I truly believe the Liberal government doesn’t believe it’s an issue. They don’t see any real downside, although I think the Liberal loss in Ontario definitely shows there’s a downside.”
Sharing your spouse’s debt might be unwise
How merging family debt in a second mortgage raises risks
by Scott Terrio Jun, 2018
Q: My husband and I still owe $44,000 in student debt between the two of us. We each have our own credit card, and I pay mine off in full every month while he owes $16,000 on his. We own our home together and have maybe $85,000 in equity today. My husband wants to use that equity to pay off our student loans and his credit card debt. I’m not sure that’s a good idea. Should we roll his credit card debt into a mortgage that we both co-signed? What impact does that have on my credit rating?
A: Consolidating your husband’s debt into a second mortgage is a risk. Many couples today bring their own personal debts to a union. Some of this is due to marriage-age people carrying more debt generally than they used to, and some is due to the fact there are more second marriages or blended families. It is fairly common that you are legally joint on a major asset — your home — despite the unequal personal debt between you. While consolidating your debt into a new loan can be a good way to save on interest charges, there are implications in rolling both of your non-joint debt into a second mortgage you each co-sign.
Today your husband’s debts are his alone. If he defaults on his payments, his creditors cannot pursue you for payment. But if you agree to consolidate his debts into a joint mortgage you are now liable personally for those debts. And that means 100% legal responsibility – not 50/50. This may not be a good solution if your second mortgage payments are still a stretch financially between the two of you.
If you were both to combine all your unsecured debt into a second mortgage, that would be a $60,000 loan for which you and your husband would be equally responsible as a result of co-signing. Assuming you can qualify for a second mortgage, which may not be feasible in today’s market, your interest rate on this loan will be higher than on your first mortgage because your lender will be assuming greater risk.
You would first want to ensure that you have the repayment capability for this new loan, on top of all your other fixed monthly payments. For a $60,000 second mortgage at an assumed rate of 5% interest, amortized over a 10-year period, it would likely cost you about $636 a month. Can you be certain that both you and your husband can afford this extra monthly payment? Recent polls have indicated that many Canadians could not afford an increase to their monthly expenses of far less than this amount.
Something we see often is an ‘event’ of some kind which pushes people over the edge financially, like a job loss or an unexpected illness. What if your husband is suddenly unable to contribute towards it? Again, you would be on the hook for the entirety of the mortgage payment.
Consolidating debt, whether student debt or credit card debt into a second mortgage also means putting an asset at risk, since your second mortgage would involve borrowing against your home. Are you willing to risk losing your home to deal with your husband’s credit card debt which appears to be the major financial problem?
As you are currently able to keep up with your debts, it may not make sense to risk your share of the home equity by collateralizing your manageable debts against your home. If you can also comfortably make payments on your student loan debt, I would suggest sticking to this plan until your student debt is paid off.
As an alternative, your husband may be able to deal with his personal debt through an affordable debt consolidation plan like a consumer proposal, rather than a second mortgage.
To be eligible to file a consumer proposal, a debtor must be insolvent. This means they either owe more than they own, or they cannot keep up with their debt payments as they come due. If your husband is struggling with excessive credit card and student debt, he may qualify.
In this case, however, your husband has a substantial asset that his creditors would expect to gain value from: his share of the equity in your home. The equity in his home is sufficient to cover all his debts in full. While it is possible to file an interest-free consumer proposal for 100% of your debts, whether this is financially feasible is too complicated to determine without a closer look at his budget.
Your husband’s situation is also complicated by his student debt. It’s important to note that student loan debt can only be discharged with a consumer proposal if you have been out of school for seven years or longer. Student debt is a complicated area of insolvency law; however, there may be options to allow your husband to deal with all his credit card debt and some or all of his student debt through a proposal.
The one major advantage of a proposal for your husband is that he would obtain debt relief, without having to give up security in your home. In addition, if your husband does file a consumer proposal, while it would affect his credit report, it would not affect yours.
This is a complicated scenario and one that should not be solved quickly and without a full understanding of all the options. I recommend you first talk with your mortgage lender to see what a second mortgage may cost. Then book an appointment with a Licensed Insolvency Trustee so you can compare the options, and risks, of consolidating and assuming liability for your husbands debt, with requiring your husband to deal with his debts on his own.
Survey reveals top financial fears of seniors
One-in-four seniors fear they might run out of money before they die
By: Leah Golob, Investment Executive 2018
An alarming number of seniors are afraid as to whether they can afford long-term care and stretch their retirement savings, according to a national survey commissioned by the Financial Planning Standards Council (FPSC) and Credit Canada.
The Seniors and Money Report asked 1,000 Canadians over the age of 60 how they felt about debt, income, financial planning and work.
The survey revealed that nearly half of Canadians aged 60 and older say they have at least one financial concern.
For example, one-in-four seniors surveyed fear they might run out of money before they die, while an equal amount are concerned they won’t be able to pay for long-term care. Other fears include never being able to pay off their debt, not having enough money to retire, having to sell their house or needing to depend on children for financial support.
The report also discovered that Canadians are extending their working years. Specifically, one-in-five Canadians are still working past age 60, and 6% are working to age 80 and above.
The reasons for doing so include:
- Three-in-ten can’t afford retirement (including 13% who say they’ll never afford retirement)
- One-in-eight have too much debt
- Approximately 28% don’t have enough savings
- Twelve per cent are still helping their children financially
- Nearly a third continue to work because they love their job
The report also demonstrates that fewer Canadians are able to reply on company pension plans. For example, 50% of Canadians 80 and older list a company pension plan as a source of income, while the percentage is 41% among those 60 to 69.
“Times are changing, and many seniors haven’t planned for or anticipated the life and financial circumstances they now are facing,” says FPSC’s consumer advocate Kelley Keehn, in a statement.
“Some seniors may feel embarrassed or that it’s too late to ask for assistance when it comes to their finances,” she adds. “Truthfully it’s never too late to get started.”
Additional findings from the study include:
- Men are significantly more likely to be employed, have a company pension plan or have investments as their current source of income than women
- Four-in-ten of those who have a company pension as a source of income also hold investments
- Three-in-ten Canadians age 60 and older with children are supporting them financially (including 22% of those 80 and older)
Overall, Canadians aged 60-years and older are more likely to be supported by the government (73%) than any other form of income.