New Mortgage Rules in Canada

December 7, 2016 by Brett Cairns

Homes and Mortgages

New Mortgage rules were announced by the Canadian Government that will take effect Monday Oct 17, 2016 which means people will need to get in an application by at least Friday the 14th to get in under the old rules. The government is responding to concerns that sharp rises in house prices in cities like Toronto and Vancouver could increase the risk of defaults in the future should mortgage rates rise. Having said that the government will be applying these rules to all of us not living in those two areas.

Current Rules

Buyers who buy a home with a down payment of at least 5 per cent of the purchase price but less than 20 per cent must be backed by mortgage insurance. This protects the lender in the event that the home buyer defaults. These loans are known as “high loan-to-value” or “high ratio” mortgages. Mortgage insurance in Canada is backed by the federal government through the Canada Mortgage and Housing Corp. Insurance is sold by the CMHC and two private insurers, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. The federal government backs the insurance offered by the two private-sector firms, subject to a 10-per-cent deductible.

In situations in which the buyer has 20 per cent or more for a down payment, the lender or borrower could obtain “low-ratio” insurance that covers 100 per cent of the loan in the event of a default.

Changes to High Ratio Mortgages

A mortgage rate stress test to all insured mortgages. As of Oct. 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages – including those where the buyer has more than 20 per cent for a down payment. The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada. This rate is usually higher than what buyers can negotiate. As of Sept. 28, the posted rate was 4.64 per cent. Other aspects of the stress test require that the home buyer will be spending no more than 39 per cent of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44 per cent.

It is important to note that this measure also affects home buyers who have at least 20 per cent for a down payment but are seeking a mortgage that may stretch them too thin if interest rates were to rise. It also affects lenders seeking to buy government-backed insurance for low-ratio mortgages.

Changes to Low Ratio Mortgages

As of Nov. 30, the government will impose new restrictions on when it will provide insurance for low-ratio mortgages. The new rules restrict insurance for these types of mortgages based on new criteria, including that the amortization period must be 25 years or less, the purchase price is less than $1-million, the buyer has a credit score of 600 and the property will be owner-occupied.

New reporting rules for the primary residence capital gains exemption

Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency. Everyone who sells their primary residence will have a new obligation to report the sale to the CRA, however the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled. While officials say more data are needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption.

Government consultations on lender risk sharing

Currently, the federal government is on the hook to cover the cost of 100 per cent of an insured mortgage in the event of a default. The federal government says this is “unique” internationally and that it will be releasing a public consultation paper shortly on a proposal to have lenders, such as banks, take on some of that risk. The Department of Finance Canada acknowledges this would be “a significant structural change to Canada’s housing finance system.” Mortgage lenders, such as banks, would have to take on added risk. This could potentially lead to higher mortgage rates for home buyers. The federal government wants to limit its financial obligations in the event of widespread mortgage defaults. It also wants to encourage prudent lending practices.

Previous Changes

Previous government changes since 2008 included:
July, 2008: After briefly allowing the CMHC to insure high-ratio mortgages with a 40-year amortization period, then Conservative finance minister Jim Flaherty moved to tighten those rules by reducing the maximum length of an insured high-ratio mortgage to 35 years.
February, 2010: Responding to concern that some Canadians were borrowing too much against the rising value of their homes, the government lowered the maximum amount Canadians could borrow in refinancing their mortgages to 90 per cent of a home’s value, down from 95 per cent. The move also set a new 20-per-cent down payment requirement for government-backed mortgage insurance on properties purchased for speculation by an owner who does not live in the property.
January, 2011: The Conservative government under Stephen Harper tightened the rules further, dropping the maximum amortization period for a high-ratio insured mortgage to 30 years. The maximum amount Canadians could borrow via refinancing was further lowered to 85 per cent.
June, 2012: A third round of tightening brought the maximum amortization period down to 25 years for high-ratio insured mortgages. A new stress test was also introduced to ensure that debt costs are no more than 44 per cent of income for lenders seeking a high-ratio mortgage. Refinancing rules were also tightened for a third time, setting a new maximum loan of 80 per cent of a property’s value. Another new measure limited the availability of government-backed insured high-ratio mortgages to homes valued at less than $1-million.
December, 2015: The recently elected Liberal government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector.
The package of measures included doubling the minimum down payment for insured high-ratio mortgages to 10 per cent from 5 per cent for the portion of a home’s value from $500,000 to $1-million.

What do the new rules mean?

The first one affects the “qualification rate” used to assess borrowers. Starting Oct. 17, people getting a five-year fixed mortgage will have to prove they can afford a payment based on the Bank of Canada’s posted rate, currently 4.64 per cent. That’s currently 2.25 percentage points above the average qualification rate.

Consider a practical example. Take someone with 10 per cent down, $50,000 of income and no debt who can afford a $300,000 home today. Once this new qualification rate takes effect in two weeks, that drops to $246,000, a remarkable 18-per-cent plunge in affordability. Many will now be forced into smaller mortgages, assuming they can’t find a co-signor or bigger down payment.

Homes and Sustainable Development

December 7, 2016 by Brett Cairns

Canada’s Federal Department
The phrase “sustainable development” means different things to different people and organizations. At the federal level in Canada Environment and Climate Change Canada has the lead on sustainable development .Their website displays their overriding goal of meeting the needs of today without comprising the needs of future generations.

Sustainable Development Defined
From a purely literal perspective, sustainable means to be maintained a certain rate or level. Similarly, the word development means the act of creating or growing something over time. The goal of this department seems to contradict the literal meaning of this phrase. For development (creation and growth) to be sustainable (maintained) one has to wonder why their aim is not something like meeting the needs of today and tomorrow while being a good and responsible steward over the resources on which we depend.

Stewardship
Stewardship is defined as an ethic that embodies the responsible planning and management of resources. It should be considered an obligation for which something is entrusted to our care. This involves a trust that we will do the right thing for the right reasons. Being good stewards means having the authority, taking responsibility for, and being accountable for the things that are entrusted to us.

Basic Needs
We live in a world that provides us the means to live. Our most basic needs include having water, food and shelter. These fundamental needs have not changed for millennia. As our societies developed over time transportation became a more basic need. To thrive we also need to be safe, secure and healthy. We depend on our climate, our environment and our water for many, if not all of our most fundamental needs. As individuals we have many responsibilities for our own health but we also depend on others for some aspects of our health as well as elements of our safety and security. These social, environmental and economic responsibilities and dependencies are complex in the world of today and they will become no less so in the world of tomorrow.

Homes and Shelter
As communities in BC continue to grow the demand for new homes and other forms of shelter increases and so does the demand for the resources with which they are made. This is one area where social, economic and environmental priorities can collide. The International Institute for Sustainable Development is an independent non-profit organization that aims to provide practical solutions to these types of challenges.
Building homes is an economic activity that requires many different types of resource and maintaining and sustaining the home and the communities within which they are built and located requires additional ones.

Resource Demands
There are generally always new homes for sale in the Comox Valley that often require many different forms of materials made from the natural resources our world provides us. For us to continue to build homes at an increasing level to meet increasing demands our resources have to be more than sustainable. They need to grow or we need to find alternative means and methods to support the growth.

Take wood, for example. It is not good enough to protect the forests that we have. They need to be nurtured and developed and grow and be re-grown at a rate that meets or exceeds our demand for the raw resources. Other resources such as the fuel and electricity used in the construction process also need to be treated the same way. We must be good stewards over our resources so that they are not depleted. Our water and climate also is extremely important. We depend on them for our most basic needs as well as many needs generated by our contemporary and modern societies. Societal and economic needs are generated by us, the people who inhabit this planet. We, those same people, have responsibilities to be good and effective stewards over the resources that our planet provides us such as a livable climate, water we can drink, food we can grow, shelter we can build, etc. We cannot afford to ignore these responsibilities. How we embrace and discharge them is also important.

Bureaucracies
Within Canada and within most developed countries we have adopted different forms of bureaucracies to help deal with the complex issues discussed above. Federal, provincial, and municipal governments were created to help us be good stewards of our resources and to help us with our basic and other needs. It is important for different levels to work together towards common goals that are in all of our best interests. Where this process often breaks down is when there is lack of cooperation or lack of consensus on the goals themselves and/or the priorities afforded to them. Some things are simply more important than other things if we are to live healthy, safe and secure lives. Yes safety and security are different. Think of security as the overarching umbrella (processes, methods and safeguards) used to ensure our public and personal safety (physical and emotional).

The most fundamental needs should be afforded the highest priorities but this is not always the case. Small fiefdoms within bureaucracies can and do exist and they can and do derail valid initiatives. Greed, power and personal agendas can and do sometimes rear their ugly heads. As well, rules and regulations can and sometimes are written with the best intentions but they can result in unintended consequences. Moreover, blanket solutions to unique problems can cause more problems than they resolve. All too often rules and regulations are added to “help” us but all too many merely burden us. Take, for example, setbacks established by the provincial government for Riparian areas. Yes we need to protect those resource but more importantly we need to grow them and be good stewards of them. A 30 metre setback applies to watercourses across the board on all areas of the province is easy to write into a regulation but is it the most effective method to help us be good stewards? In some situations 30 metres may be way too much and in others not nearly enough. In yet others it may be the wrong approach entirely. When solutions are proposed they need to address identified problems and not create more problems than they solve.

Local Experts and Local Needs
Local experts and residents are often best placed and positioned to address local problems. Why? Because they will be most affected and have the most to gain or lose. While higher level bureaucracies may be called in to assist they should assist with the provision of the requisite resources. Local experts sometimes are found in local municipal bureaucracies but many are found within the local community. Local bureaucrats all too often forget that they are there to serve the needs of the public and not to dictate to them. The public and not the bureaucracy should agree on the problem and the solution. All too often local bureaucrats and politicians get too involved in the decision making process related to problems and solutions. This is an area where the USA has it right. The people decide on whether or not major initiatives go forward or not.

For example, if a community enters into water restrictions nearly every summer because of a water supply problem, the source of the problem needs to be found and addressed. Let’s say that a community draws its water from a nearby lake and that the lake is very deep yet the draw from it is shallow. The most logical solution is to install a deep water access and draw and to put measures in place to monitor changes to the depth of the lake on an ongoing basis and to also understand how and from where the lake is replenished and to assist in this process if mother nature cannot do it on her own. Trying to address shortages (quantity) with things like new filtration plants (quality) just makes no sense yet this very issue is being discussed in this way at the time of the writing of this blog.

Public Consultation
The public consultation process in Canada is often broken. Too many times elected officials and bureaucrats take it upon themselves to involve the public on issues that affect people only after solutions are being proposed. The first step should be agreement on the problem. The second step should be an analysis of the problem and potential solutions. People should decide on the course of action to be followed and then when the economic implications are known vote on its implementation. Does this occur in your local area? Is there a reason why so few people from the public get involved in the First, Second and Third Reading process? Do your local officials actually listen to and act on the voice of the people?

Summary
Yes sustainable development is a very complex issue but the fundamental tenant is fairly simple. The care of our planet is entrusted to us and we depend on it for our livelihood. Sustainable development should aim to meet the needs of today and tomorrow while ensuring good, effective and responsible stewardship over our climate, environment and the natural resources on which we depend to live and thrive. Building homes and communities is a small piece of this process.

Is Customer Service Dead?

December 7, 2016 by Brett Cairns

Is customer service dead? Before answering this question, let’s look at the question. First, it has two parts – customer and service.

What is a customer? Most definitions tell us that a customer is someone that buys goods and services from a business. Goods and services are produced from outcome of human effort to meet the wants and needs of other people. In other words, goods and services are products that people provide to other people. So, customers buy products (goods and services) from other people.

What is a service? Services are distinct from goods. Goods are tangible products that are produced and provided to other people. We can touch goods. Services are intangible products that involve the action of helping or doing work for someone. We all benefit from services but we cannot actually touch them. Nearly 70% of Canadians are employed in the service industry so services must be important.

The word customer is often used interchangeably with client. Do these two nouns really mean the same thing or is there a difference between the two? Some argue that a customer buys goods or services from a business while a client engages the services of a professional. According to these distinctions, services are provided to both customers and clients. As a professional with more than 40 years of education, training and experience I agree that there is a difference between a customer and a client but that these just mentioned general distinctions do not go far enough.

Here is what I have learned over a lifetime of education, training, and experience:
1. A customer buys goods and services. The person who provides the goods and services is trying to sell something to the customer. The goods and services provider has an economic focus; and
2. A client engages the services of a professional but the person who provides the services represents the client and/or the interests of the client. The service provider has (or should have) a people focus they act (or should act) in the best interests of that person when providing them with services such as information and advice.

All goods and services providers must make money to stay in business. What differs, however, between those that deal with customers and those that deal with clients is (or at least should be) the priority placed on the economic element of the respective businesses.

So, a service provider – customer relationship is economically focused and a service provider – client relationship is people focused. Customer satisfaction is important because a returning customer means more sales to the goods and services provider. Client satisfaction does have an economic payoff as well but the main motivation on the part of the service provider should be doing what is best for the client to meet their needs and wants. The economic element should be secondary.

Now let’s turn back to the original question. Is customer service dead? One might think so based on some of the following experiences:
1. A person purchases a new cell phone from a kiosk in a department store and is told of the one-year warranty on the phone by the sales person. The customer buys the phone and a couple of weeks later brings the phone back having experienced nothing but problems with it. The customer is then told of the fine print that the kiosk is only responsible for the dealing with the phone for the first 14 days of the contract after which the customer must deal directly with the manufacturer to have it fixed;
2. A person books a hotel online for a date that is several months away. According to the online booking the room is fully refundable but that they must enter their credit card info at the time of booking. Once the book now button is pressed they are told that their credit card was just charged for the full amount of the room. They immediately cancel the room but are informed that the refund will not get applied back to their account for a couple of weeks;
3. A person books a flight to a sunny destination. Once on board the flight they are told that there is a shortage of food and beverage and they are not provided anything to eat but a few snacks and the beverage service is limited. The seats are fitted so close together that there is no room to move. The flight attendants spend most of their time reading magazines at the front and back of the plane and when asked for service tell customers that the priority of their job is the safety of passengers and that they are not stewardesses;
4. A person calls an insurance company merely to confirm receipt of a fax sent to that company at the request of a “customer service” representative”. They send the fax and call to confirm receipt of the fax and are told by the representative that they have no way of checking because the fax machine is in another building and that they have no phone number for that building. However, if it is received they should see something on the file in a few days;
5. A person calls a phone/internet/TV service provider and after being asked by a computer to answer many questions is placed in line to speak to a real person. 40 minutes later they hang up in frustration; and;
6. A person enters an automotive parts store on a weekend and asks about a specific part. The sales person does not know how to look up the part and tells the customer that they do not have any more time to keep looking for it and to come back during the week when a more experienced person will be in the store to help them.

Each of the previous examples are real life examples of poor customer service. Undoubtedly the reader could come up with many more of their own. Remember when the slogan The Customer is Always Right was popular? How many times have you experienced just the opposite over your lifetime?

All customers should expect great customer service from people who are trying to sell them something like a home. All clients should expect great service and that their needs and best interests will be the top priority of the professional providing them with service. Perhaps all service providers should adhere to the following basic, but powerful slogan: Service First. People Always. Would not the world be a much better place if they did?

Choosing a realtor is a personal and important decision. Aim high for peace of mind. Contact Brett to represent you when you buy or sell your next Comox Valley home.

Lookie Loos Need Not Apply

August 3, 2016 by Brett Cairns

Lookie Loos Need Not Apply

The term Lookie Loo (also Looky Loo, Looky Lou, and Lookie Lou) was coined many years ago to describe people who love to look at real estate without any intention of buying it. This expression has the same meaning as tire kicker and window-shopper.

There is, of course, nothing wrong with browsing or looking at something for one’s own enjoyment. What is wrong is giving someone else an impression, either directly or indirectly, that you are a serious buyer when you are merely browsing. Why is that?

Professional Services Cost Money

In real estate, whenever you ask a real estate agent to provide you with a professional service such as showing you some of the best homes for sale in Comox or showing you the local area, it begins to cost them time and money. The vast majority of real estate agents are only paid for their services when they complete a home purchase or sale for their clients. Until they are paid, it costs them their own time and money each and every day to stay in business (their fixed business costs) and to provide people with real estate services (their variable business costs). Like many different types of small businesses, these business costs can easily run into thousands of dollars each and every month.

Serious or Not

People who are serious buyers rely on real estate agents for a wide spectrum of real estate services. Agents who are competent and proficient can provide great service to people and in turn help them reduce the stresses associated with buying a home. They can also save home buyers time and money. When someone who is not a serious buyer engages a real estate agents and occupies their time, there is a cost to the agent and to the other people who really do need the services. Great agents are appreciated by serious buyers. People who are not serious buyers can still get the enjoyment of looking at homes by attending open houses and show homes.

Cost to the Seller

Besides the adverse impact on the real estate agent and their buyers, think about the cost to the person who is allowing their private residence to be shown to people who have no intention of buying it. People who are proud of their homes will take time to clean and prepare it for showings. Most sellers do not want people coming through their private abode who are not serious buyers. If your home was for sale would you want people coming through your private residence without having any real intention of buying it?

Be Forthright

Most people do not like other people wasting their time. They especially do not like other people costing them money if there is no money to be made in return for services provided. Please think twice before asking a real estate agent to show you an area or homes because “you are thinking of moving there”. Be forthright with your intentions. If you are not serious say so. Good real estate agents will still be able to help you in ways that do not cost them much time and money. When you become serious you will be glad that you have a competent realtor willing to help you buy or sell your next home, and in doing so, saving you time, stress and money.

My Home is my Castle but how much real estate do I own?

August 3, 2016 by Brett Cairns

Comox Valley Luxury Home for sale

The purchase of homes and land can be more complicated than people realize if not done properly. Real estate, also called real property, generally consists of the land and whatever is growing on it, affixed to it and built on it. In the eyes of the law, personal property is everything else, which, by the way includes mobile homes that are not affixed to the land.

I own my land so I can do what I want with it. The preceding statement is a fairly commonly held belief that is not true. When we buy real estate we buy rights to the use of the land but the real “owner” in Canada is the Crown – meaning the federal and provincial governments. This is why the government has fundamental rights such as expropriation, tax sales, and the right to determine land use through zoning and to establish regulation of construction on land through building codes.

The purchase of land in British Columbia involves the transfer of money from the buyer to the seller and the transfer of title to the land from the seller to the buyer. The title will contain identification information related to the land such as a unique nine digit Property Identification Number (PID) and a legal description. It will also contain ownership information that is expressed as an interest in the land that gives us rights to the land. For example, a Fee Simple (or Freehold) Interest in the land is the largest group of rights we can have over our land. This is called Registered Owner in Fee Simple on the title.

These land rights can be held by one person or two or more people as Joint Tenants or Tenants in Common. As well as stipulating the type of ownership interest in land, the title can have legal interests or encumbrancers on it as well such as mortgages, rights of way, easements, covenants, judgements, leases and builders liens. These common charges on a title can affect and restrict the way we use our land and some legal annotations can prevent transfer of the title. For these reasons, it is important to do a title search when considering the purchase of a home or land.

While we have rights to the land we buy, other rights such as the airspace above, surface water and subsurface rights are generally limited and regulated. Zoning regulations for the property also affects what we can do with the real estate we buy. There are also many other things that have the potential to affect our use of the land. When you are planning to make your next Comox Valley home purchase from those listed contact Brett Cairns of REMAX Ocean Pacific Realty to be your buyer’s agent so that you can have peace of mind when you buy.