By: Hunter Crowther
The Trudeau government is introducing new regulations to stunt foreign investors from over-inflating the housing market and make sure Canadians can afford the mortgages they sign.
Finance Minister Bill Morneau made the announcement in a speech in Toronto on Monday.
Morneau said the new measures are designed to safeguard Canadians from a potential housing crisis, similar to the 2008 market crash in the United States.
“I believe the housing market is sound,” Morneau said in a press conference at the federal government offices on King Street. “But as minister of finance, I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk.”
Today’s #housing measures bring consistency to mortgage rules, reduce risk for
taxpayers and ensure everyone is playing by the rules.— Bill Morneau (@Bill_Morneau) October 3, 2016
One of the major decisions announced was the closing of loopholes in Canadian tax laws that enabled non-residents to purchase homes in Canada, then avoid paying capital gains on their taxes when they sell the home by claiming it as a principal residence.
“We will ensure that the principal residence exemption is available only to Canadian residents, and that families are able to designate only one property as the family’s principal residence for any given year,” said Morneau.
Families will now only be able to choose one property as their principal residence within any given year.
Two major Canadian metropolitans – Toronto and Vancouver – are often cited as byproducts of foreign investment making an impact on municipal housing markets.
Last summer, Vancouver implemented a 15 per cent property transfer tax on foreign nationals attempting to purchase real estate to temper market inflation.
“When you have an economy that works for the middle class, you have a country that works for everyone.” -Finance Minister Bill Morneau
Another announcement from Monday’s press conference was, effective Oct. 17, all new insured mortgages will need to undergo a mortgage rate stress test by lenders that Morneau calls “more robust than what is often currently applied.”
These measures would prevent potential buyers from acquiring mortgages they wouldn’t be able to afford if interest rates rise or their income drops.
Also, effective Nov. 30, nearly all types of mortgage insurance will need to meet loan eligibility criteria that previously only applied to highly leveraged insured mortgages
Anyone who already had a mortgage or was in the midst of applying for mortgage insurance is exempt from the new regulations.
Morneau also said the federal government would be “launching a consultation with market participants this fall on lender risk sharing,” meaning mortgage lenders would take back a portion of loan losses on insured mortgages that default, instead of handing off “virtually all the risk onto the taxpayer.”
“When you have an economy that works for the middle class, you have a country that works for everyone,” said Morneau.