Hi viewers! With the recent announcements made by the federal government and its budget for the housing market and the Bank of Canada rates increases, we know a lot of homeowners, buyers and investors are wondering “How is this going to impact us?”

We want to bring more clarity to our clients and viewers, so to join us today and guide us through this information, we have a very qualified and experienced mortgage broker with Lotus Loans and Mortgages and a very dear friend Neil Pahuja.

Welcome, Neil!

First off, hello viewers and thank you Jaya for that wonderful introduction! 

Before we get started, I just wanted to let our viewers know that it’s been an absolute pleasure working with you, Jaya, and your husband over the last, I think it’s been 20 years! You both are great realtors and amazing friends. 

Thank you! And the same goes for you – absolutely! 

Neil, help us make sense of this. Let me start, first of all, by talking about the latest Bank of Canada decision yesterday, where the prime rate was increased by a percent. It was also made quite clear that further rate increases are to be expected in the future.

Correct. So bank rate or bank prime has now gone from 2.7% to 3.2%. In addition to this increase in the prime rate, the discounts on variable rate mortgages have lessened in the last few weeks. 

Where banks were offering prime minus 1% about a month ago, they are now offering about prime minus 0.5 which takes new variable rate mortgage clients up to a new rate of 2.7%. 

Fixed rates have also increased lately. Five-year fixed rates are over 4% right now.

This means that rates are significantly higher than they were just a few months ago.

This will certainly act to erode affordability and perhaps this could halt the significant appreciation in the Canadian housing market that we’ve experienced over so many years. 

By the way, the prime rate increased by 0.75% since just this past March. The Bank of Canada meeting that is scheduled for June 4th is already predicted to raise the prime rate another quarter-point to even a half-point.

Some rates have been historically higher in the past but, you know, we should all remember that because we’re all stress-tested when we qualify for our mortgages, mathematically we should be able to afford more increases. Not that anybody wants these, but be prepared. 

Right – absolutely! 

So let’s shift the conversation over to last week’s Canadian Federal Budget announcement. This announcement included several measures with the goal of cooling Canada’s currently red, hot housing market.

One of the measures is the introduction of a tax-free first home savings account that allows Canadians under the age of 40 to save up to $40,000 towards their first home. 

What are your thoughts about this new account? Wasn’t there a similar program in place before where first-time homebuyers could borrow up to $35,000 from their RSP savings to help finance the down payment on a home purchase?

Yes! So this program is slated to start in 2023 and it will give first-time home buyers the ability to contribute up to $40,000 into this new tax-free savings account. It will be tax-deductible, like an RSP, and there’ll be no income tax payable with the withdrawal of these funds, like a TFSA, as long as the purpose of the withdrawal is for a home purchase.

Another interesting feature of the first home savings account is that it will not have to be repaid, which makes this program different from the first-time home RSP loan program, which you mentioned in your question, Jaya.

So, in my opinion, the fact that you don’t have to pay back your RSP withdrawals, this program will be more popular than the home buyer program.

That’s really wonderful for first-time home buyers! I mean, that’s one of the main problems, you know – “Where’s the down payment coming from?”.

For sure! And the fact that at least now you don’t have to pay back whatever you’ve taken out of your savings, which is going to be very helpful. 

Absolutely! Great! 

Um, one of the more popular proposals for making housing more affordable, is a two-year ban to lock most foreigners and non-Canadian companies from buying real estate in Canada.

What’s your opinion on this tactic and as a mortgage broker, what percent of these transactions do you really see?

Yeah, this proposal received a lot of media attention. 

Um, I’m not sure if this proposal is going to have any significant effect on the market since the percentage of these types of borrowers is actually pretty low. 

Our office closes about 300 transactions a year and we only close about one of this type per year. And that’s the consensus with other mortgage brokers I’ve spoken with. 

There are many loopholes in the program, such as exemptions for permanent residents, foreign workers, and international students. So, again, I don’t see this proposal being a game changer. 

Absolutely. I agree on that.

All right! So, here’s a really good one and I’m sure most home buyers would be really curious to know how it pans out. 

The government has created a new home buyers bill of rights. So, the process of buying a home is fair, open, and transparent. Well, it is already, but anyways! The new bill of rights now includes open bidding.

Can you give us your view on this new bill of rights?

Sure! So the bill includes a ban on blind bidding, as you said, which hopefully keep buyers from overpaying for homes. The bill also includes the legal right to perform a home inspection. This right, in my opinion, is a fair one. 

It will give buyers a chance to determine the true value and condition of the home that they’re buying upfront. 

Furthermore, the bill is supposed to increase transparency about previous prices of properties.

I know this information is already available at a minimal cost, so I guess I’m wondering if the government is now going to give this information up for free. The bill also gives buyers the right to know when real estate agents are involved in both sides of the sale. 

And, Jaya, correct me if I’m wrong, but doesn’t this right already exist? 

Yes, it does already exist. That’s called dual representation and there is a column you have to sign – both the sellers and the buyers – agreeing that they actually understand that that’s happening. 

Yeah, but the home inspection, I agree on that.

Yeah, that’s a good one. 

Cause you really don’t know, you know, what’s happening in the house and it definitely takes some pressure off of buyers.

That’s a good one, but I’d be curious to know how the open bidding works. That’s going to be new.

That will be a game-changer, Jaya.

Well, we’ve come to that, and let’s see what comes into fact.

I’m going on to the next one. As of January 1, 2023, anyone who sells a property they’ve owned for less than 12 months will have the profits taxed as business income with exceptions made in cases where, of course, it has to be tied to legitimate unforeseen circumstances. 

What do you think of this measure? 

Actually, I think this measure is long overdue in my opinion.

If someone makes a living by flipping houses, they should pay income taxes at the same rate as everybody else. 

One thing though, these days, it takes a significant amount of time to obtain permits, to procure materials due to chain supply constraints, not to mention how backed up contractors are. So I think a so-called home flipper won’t be too hard pressed to hold the house for 12 months and avoid the tax payments. 

Um, how about the measure when reselling a new construction purchase agreement and assignment, the original buyer must pay the HSD based on the original purchase price at the time of sale now? 

Yeah, I think that’s the point though.

For those who don’t know, assignment sales are those where an initial deposit is made with no intention of closing the transaction. 

Instead, the original buyer assigns or sells the right to buy the property and then profits from the appreciation over the original price. 

I hate to say it, but it’s probably long overdue that assignment sellers should pay their share of tax on this type of profit. 

Absolutely! Because they are making a huge profit. 

Ok! All right! I’m glad we’re on the same page.

And, finally, what are your overall thoughts on the Federal Government’s 2022 Federal Budget in regards to the impact on the real estate market?

I think the Federal Budget was long in promises and new measures, but I’m not sure if there’s enough in the budget to deal with the increasing housing supply shortage and affordability issues. Especially considering that in the next few years, we’re expecting a rather large amount of new immigrants and I actually think that the 50 basis point Bank of Canada rate hike will do more than this budget will in terms of taming the housing market and stabilizing home prices. 

All right! Well thanks for sharing all this information with us today and with your experience, you know, the market continues to stay strong because it’s definitely what’s best for the economy and viewers hope you found this information helpful.

If you need any help in your real estate purchase or investments please do contact us.

Thank you to Neil Pahuja from Lotus Loans and Mortgages. Wonderful talking to you. Thank you very much.

Alright, have a wonderful evening! Take care!