Monthly Archives: September 2018

Benefits of Homeownership Reaffirmed in New Study

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Despite deteriorating housing affordability across the country, buying a home is still the more affordable option when compared to renting.

A new report from Mortgage Professionals Canada has determined that, despite the rapid rise in home price, those who are able to invest in a home would end up “significantly better off” in the long term compared to renting.

The report, authored by the mortgage broker association’s chief economist Will Dunning, found that while upfront monthly costs are in fact cheaper in most locations, the “net” cost of ownership is less than the equivalent cost of renting in a majority of cases, and becomes even more cost effective over time.

“The costs of owning and renting continue to rise across Canada,” Dunning noted. “However, rents continue to rise over time whereas the largest cost of homeownership–the mortgage payment–typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership.”

Additionally, the costs of ownership include considerable amounts of repayment of the mortgage principal. “When this saving is considered, the ‘net’ or ‘effective’ cost of homeownership is correspondingly reduced,” Dunning added.

On average, the monthly cost of owning exceeds the cost of renting by $541 per month. But when principal repayment is considered, the net cost of owning falls to $449 less than renting.

Interest Rate Scenarios

The analysis compared the cost of renting vs. owning both five and 10 years into the future, with higher interest rates factored into the equation. In all cases, owning comes out ahead:

Scenario #1: If interest rates remain the same (using an average of 3.25%), after 10 years the average net cost of owning is $1,014 less than the monthly cost of renting.

Scenario #2: If interest rates rise to 4.25% after five years, the average net cost of owning falls to $1,295 less than the monthly cost of renting.

Scenario #3: If interest rates rise to 5.25% after five years, the average net cost of owning is still $726 less than the monthly cost of renting.

“By the time the mortgage is fully repaid in 25 years (or less) the cost of owning will be vastly lower than the cost of renting,” the report adds, noting that the cost of owning, on average, would be $1,549 per month vs. $4,655 for an equivalent dwelling.

Canada Still a Country of Homeowners

Despite rising home prices and deteriorating affordability, Canada remains a nation of aspiring homeowners.

The study pointed to the continued strong resale activity as one indicator of this.

Resale activity in 2017 was still the third-highest year on record, at 516,500 sales, just off the peak of 541,2220 sales in 2016.

But other polls have also found a strong desire among younger generations that still dream of owning.

RBC’s Homeownership Poll found a seven-percentage-point increase in the percentage of overall Canadians who planned to buy a home within the next two years (32%), and a full 50% of millennials.

Similarly, a RE/MAX poll found more than half of ‘Generation Z’ (those aged 18-24) also hope to own a home within the next few years.

Perhaps the biggest question is whether those aspiring homeowners will have the means to surpass the barriers to homeownership, namely larger down payments and the government’s new stress test.

“While recent changes to mortgage qualifying have made the barrier to entry higher, those who can qualify will be much better off in the long term,” Paul Taylor, President and CEO of Mortgage Professionals Canada said in a statement. “Given the economic advantages of homeownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve homeownership.”

Despite it’s affordability benefit over renting, Dunning addresses some of the impediments of homeownership, namely the longer timeframe needed to save for the down payment. Despite higher home prices and larger down payments required, first-time buyers still made an average 20% down payment.

Additional Tidbits from the Report

Some additional data included in Dunning’s report include:

  • Average house price rose 6.2% per year from $154,563 in 1997 to $510,090 in 2017
  • Average weekly wage growth was up just 2.6% per year from 1997 to 2017
  • The average minimum interest rate for the stress test during the study period: 5.26%
  • The average annual rates of increase for the following housing costs:
    • Property taxes: 2.8%
    • Repairs: 1.9%
    • Home insurance: 5.4%
    • Utilities: 1.6%
    • Rents: 2.4%

Canadians can’t afford NOT to buy study suggests

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Rising rents is making homeownership the affordable alternative according to a new report.

In a comparison of expected costs by those intending to rent and those who chose to own, Mortgage Professionals Canada’s chief economist Will Dunning concludes that ownership costs less than renting today and is even more cost effective over time.

“The report demonstrates that the money Canadians are spending on monthly rent, if used instead to finance a home, would be a very beneficial investment over time,” explained Dunning. “The costs of owning and renting continue to rise across Canada. However, rents continue to rise over time whereas the largest cost of homeownership – the mortgage payment – typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership.”

How much could buyers save?
By looking at the comparative costs, the report shows that, if mortgage rates remain at 3.25%, in 10 years the cost of ownership (on the net basis that takes out principal repayment) will be lower than the cost of renting for almost 98% of cases. The saving for owners vs renters would be $1,295.

If rates were to rise to 4.25% after 10 years, the cost of ownership is less than the cost of renting in 92% of case studies, with an average saving of $1,014 per month.

A rate of 5.25% would still make homebuying a lower cost option in 82% of case studies with a monthly saving of $726.

“Using conservative expectations for rental increases over time, there is a clear financial benefit of owning versus renting,” commented Paul Taylor, President and CEO of Mortgage Professionals Canada. “While recent changes to mortgage qualifying have made the barrier to entry higher, those who can qualify will be much better off in the long term. Given the economic advantages of homeownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve homeownership. Our collective long-term economic success may be compromised without that support.”

Newly Built Home Exemption

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The Newly Built Home Exemption reduces or eliminates the amount of property transfer tax you pay when you purchase a newly built home.

A newly built home includes:

  • a house constructed and affixed on a parcel of vacant land
  • a new apartment in a newly built condominium building
  • a manufactured home that is placed and affixed on a parcel of vacant land
  • an already constructed house that is removed from one parcel of land and affixed to another parcel of vacant land, as long as the house hasn’t been occupied since it was placed on the new parcel of vacant land
  • a house resulting from the division of an existing improvement affixed to a parcel of land that was also subdivided, as long as this house hasn’t been occupied since the subdivision of the parcel
  • a house converted from an existing improvement on the land. The previous improvement couldn’t have been used as residential (e.g. a warehouse converted into apartments).

If you qualify for the exemption, you may be eligible for either a full or partial exemption from the tax.

If you paid property transfer tax when you purchased vacant land and you now have a newly built home on the land, you may be eligible for a refund of the property transfer tax you paid.

Do I Qualify?

To qualify, the property (land and improvement) transfer must be registered at the Land Title Office after February 16, 2016 and you must be:

  • an individual
  • a Canadian citizen or permanent resident (you will be asked to provide your Social Insurance Number (SIN) or proof of permanent residency and your birthdate)

and the property must:

  • be located in B.C.
  • only be used as your principal residence
  • have a fair market value of $750,000 or less
  • be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption, if the property:

Find out the amount of your exemption if you qualify.

Foreign entities and taxable trustees are not eligible for the exemption. If you are an individual who doesn’t qualify because you are not a Canadian citizen or permanent resident, but you become one within 12 months of when the property is registered, you may apply for a refund of the property transfer tax.

Find out if you are also eligible to claim a refund of any additional property transfer tax you may have paid.

Apply

Select or enter exemption code 49 on the Property Transfer Tax Return to apply for the Newly Built Home Exemption.

Occupancy Requirements

After you have registered the property, you must meet occupancy requirements during the first year you own the property. To keep the tax exemption you must:

  • Move into your home within 92 days of the date the property was registered at the Land Title Office
  • Continue to occupy the property as your principal residence for the remainder of the first year

You will receive a letter at the end of the first year to confirm you meet these requirements.

You may keep part of the exemption if you moved out before the end of the first year. However, you must repay a portion of the amount of the exemption based on the number of days you moved out before the end of the first year.

Note: If the owner passed away, or the property is transferred because of a separation agreement or a court order under the Family Law Act before the end of the first year, the full exemption still applies.

Refund

If you qualify for the exemption, but didn’t apply when you registered your home, you may apply for a refund.

Vacant Land

If you purchased a vacant lot and paid the tax upon registration, you may apply for a refund if:

If you move out before the end of the first year, you may be eligible for a partial refund of the tax you paid based on the number of days you occupied the property.

If the owner passed away, or the property is transferred because of a separation agreement or a court order under the Family Law Act before the end of the first year, you may still be eligible for a refund.

Apply for a Refund

To apply for a refund:

  1. Complete, print and sign the Newly Built Home Application for Refund (FIN 272) (PDF)

  2. Scan the completed form and any required supporting documentation and either:

If you also qualify for a refund of the additional property transfer tax, you can indicate this on the same form and apply for both refunds together.

You must apply for a refund after the first anniversary of the registration date and within 18 months from the date you registered the property at the Land Title Office.

First Time Home Buyers

If you applied for the First Time Home Buyers Program after February 16, 2016, but want to apply for the Newly Built Home Exemption instead, contact us.

Contact Information

Office:

Toll free 1 888 355-2700

Office:

250 387-0555

Email:

First Time Home Buyers’ Program

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The First Time Home Buyers’ Program reduces or eliminates the amount of property transfer tax you pay when you purchase your first home. If you qualify for the program, you may be eligible for either a full or partial exemption from the tax.

If one or more of the purchasers don’t qualify, only the percentage of interest that the first time home buyer(s) have in the property is eligible.

For example, if you qualify and purchase a property with a fair market value of $400,000 with a person who doesn’t qualify you would still qualify. If you owned a 60% interest in the property, 60% of the tax amount would be eligible for the exemption.

Do I Qualify?

To qualify for a full exemption, at the time the property is registered you must:

  • be a Canadian citizen or permanent resident
  • have lived in B.C. for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a B.C. resident in the last 6 years
  • have never owned an interest in a principal residence anywhere in the world at any time
  • have never received a first time home buyers’ exemption or refund

and the property must:

  • be located in B.C.
  • only be used as your principal residence
  • have a fair market value of:
    • $475,000 or less if registered on or before February 21, 2017, or
    • $500,000 or less if registered on or after February 22, 2017
  • be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption from the tax if the property:

Find out the amount of your exemption if you qualify.

Foreign entities and taxable trustees are not eligible for the exemption. If you are an individual who doesn’t qualify because you are not a Canadian citizen or permanent resident, but you become one within 12 months of when the property is registered, you may apply for a refund of the property transfer tax. To apply for a property transfer tax refund in this case, call 250 387-0555.

Find out if you are eligible to claim a refund of any additional property transfer taxyou may have paid.

Apply

To apply for the First Time Home Buyers’ Program, select or enter exemption code FTH on the Property Transfer Tax Return.

After you have applied you must meet additional requirements during the first year you own the property to keep the tax exemption.

Penalty for False Declaration

All applications are reviewed. You will be charged a penalty equal to double the tax if you falsely declare that:

  • you have never owned an interest in a principal residence anywhere in the world at any time, or
  • you have never received a first time home buyers’ exemption or refund

First Year of Ownership

At the end of the first year you own the property you will receive a letter. The letter is to conditionally confirm that you meet the occupancy and property value requirements after you:

Existing Home

To keep the tax exemption you must have:

  • moved into your home within 92 days of the date the property was registered
  • continued to occupy the property as your principal residence for the remainder of the first year

You may keep part of the exemption if you moved out before the end of the first year.

If the owner passed away, or the property is transferred because of a separation agreement or a court order under the Family Law Act before the end of the first year, you still qualify to keep the tax exemption.

Built New Home

If you registered a vacant lot and built your own home, to keep the tax exemption:

  • the fair market value of the land when you registered the property plus the cost to build your home must be:
    • $500,000 or less if registered on or before February 21, 2017, or
    • $525,000 or less if registered on or after February 22, 2017
  • you must have built and moved into your home within 1 year of the date the property was registered
  • you must have continued to occupy the property as your principal residence for the remainder of the first year

You may keep part of the exemption if you moved out before the end of the first year.

If the owner passed away, or the property is transferred because of a separation agreement or a court order under the Family Law Act before the end of the first year, you still qualify to keep the tax exemption.

Refunds

To apply for a refund:

  1. Complete, print and sign the First Time Home Buyers’ Application for Refund (FIN 265) (PDF)

  2. Scan the completed form and any required supporting documentation and either: