A healthy real estate market is one where the bulk of the market is based on local supply and demand influences and one where speculation isn’t rampant. Most real estate agents will agree that real estate primarily means homes for housing families, and allowing families to put down roots and build strong communities. Sure, everyone wants to do well and succeed in the business, but Canadians need to have affordable housing in the cities where they live and work.
In places like Vancouver and Toronto, there’s never going to be enough supply to meet the demand. Finding buyers for homes is a certainty, and here at Real Estate Leads our online real estate lead generation system is proven effective for allowing new realtors to gain an advantage when it comes to prospecting – and that includes home buyers.
Seems as if a recent announcement from the CIBC indicates that local buyers will gaining an advantage of their own when trying to find a level playing field when competing with deep-pocketed foreign speculation buyers – something that’s rampant in both of Canada’s biggest cities.
On Feb. 1st, The Canadian Imperial Bank of Commerce (CIBC) made its mortgage advisors aware that the “Foreign Income Program” will no longer continue to be available. The new program is designed to ensure compliance with B-20 guidelines from OSFI.
And so you have it – expect a drastic impact on those using foreign income to qualify for a mortgage. This will almost certainly necessitate some changes with how many realtors will direct their advertising, along with how prospective buyer clients are qualified.
The Way it Worked
Foreign buyers and international students could qualify for a mortgage easily through the CIBC’s program. All that was required for an uninsured mortgage was a deposit above 35%, and oftentimes without any need for income verification. The bank would only be at a loss if the buyer would have to immediately stop paying their bills, and prices then declined by 35%.
CIBC reportedly even had one branch sign advertising “no income verification,” for international students.
The new income verification system is significantly stricter, in compliance with B-20 guidelines. The internal document sent to mortgage advisors walked them through the new system, with the following new requirements being notable:
- The client’s T1 General, submitted complete with foreign income stated -line 104
- CRA Form T1135, (Foreign Income Verification Statement) showing assets
- Company applications will require a CRA Form T1134 (Information Return Relating To Controlled and Non-Controlled Foreign Affiliates)
- A Canadian credit bureau report, plus foreign credit bureau report confirming any liabilities
Mortgages will now be limited to the amount of overseas income and assets declared to the CRA. That may not sound overly significant, but it will be for Toronto and Vancouver. This is particularly true given the known trend of buyers purchasing expensive homes in desirable neighbourhoods but then declaring poverty levels of income. That’s been made possible with overseas income not being declared locally. Citizens groups and politicians have been clamouring for this problem to be addressed, and now it appears maybe the ball is rolling.
CIBC is the first bank to make this kind of move, but sources at two other Big Six banks confirmed similar rules are being discussed.
Clamping Down on Big Capital Expenditures
What we’ll likely see is welcome downside pressure with this improved income verification system for Canadian real estate prices.
- It will now be more expensive for non-residents to buy a house and expect to be able to dodge local taxes
- the amount foreign buyers can borrow will now be stress tested against the declared income, which must be verified
Buyers won’t be able to buy a home and then declare income poverty levels. Tax evaders will have to pay the additional cost of contributing local income taxes, and those incomes taxes are going to dampen profit expectations for property, with lowered resale values.
But this stress testing of non-resident or non-permanent buyer incomes is also expected to throttle capital.
Uninsured buyers could previously buy almost anything so long as they could meet the downpayment requirements, and without actually proving they had sufficient income. Now that uninsured mortgages will be subjected to stress tests and incomes need to be declared, certain borrowers are going to be handcuffed in ways they’ve never been before.
As mentioned, the other banks are likely to follow, and so foreign money faces a new hurdle when investing in a home with Canada’s biggest lender banks. OSFI B-20 regulations may be one of the corrections protected affordable housing advocates have been looking for.
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