Changes Are Coming For Homebuyers

Thursday May 16th, 2019

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All levels of government: federal, provincial and municipal have proposed changes to the real estate industry. The hope is to make home buying easier for first time buyers. Proposed changes may also make it more difficult for current homeowners wishing to move up to a luxury home by increasing Land Transfer Taxes. Here’s what you need to know.

RRSP HOME BUYERS PLAN

The federal government is considering an increase to the withdrawal limits that first-time homebuyers can make from their RRSP savings. The new withdrawal limit will be increased from $25,000 per person to $35,000. A couple will be able to withdraw a total of $70,000. The money will stall have to be repaid within a 15 year period. This may not be helpful to young buyers who have not yet accumulated any significant savings in an RRSP or are still paying off student loans.

FEDERAL ASSISTANCE FOR QUALIFIED FIRST TIME BUYERS

CHMC (Canada Mortgage and Housing Corp.) is planning to offer first-time homebuyers assistance in paying for new homes or resale home purchases. Qualified buyers need to have a total of less than $120,000 in annual income and will be able to purchase a home for up to $500,000 in value. The government will provide a no-interest equity mortgage of 5% for a resale home and up to 10% on a new home. At this time, the terms of repayment are not clear as this will be an “equity loan” (a second mortgage). It’s safe to assume that when you sell your home in the future, part of the profit (or loss) will have to be shared with the government. More details will be presented before the launch of the program on September 1, 2019. This proposal may not be helpful to buyers living in large urban centres such as Toronto and Vancouver as most homes in these areas exceed the $500,000 maximum price.

TORONTO CITY COUNCIL PLANNING TO INCREASE LAND TRANSFER TAXES ON LUXURY PROPERTIES

Currently, Municipal Land Transfer Taxes are equal to Provincial Land Transfer Taxes. Toronto city council is considering a plan to increase the Land Transfer Tax on properties worth more than $3 million from 3% to 3.5%. They are also considering a further increase to 4% on all homes worth more than $4 million. This will affect homeowners looking to move up to a larger home.

SILENT AUCTIONS VS. BIDDING WARS

The Provincial government in Ontario is considering (and asking for feedback) on the current bidding war process in our province. One idea is to permit a “silent auction” in situations where multiple buyers are competing for one property. All bid amounts will be transparent to all potential buyers. There are arguments both for and against this process. I think it could further increase the final selling price. Good for the seller. Not so much for the buyer. It is expected that some form of this process will soon be permitted. Of course, it will require the express consent of the seller and every potential buyer involved.

A BAN ON ESCALATION CLAUSES?

“The buyer agrees to pay a further $10,000 more than any other offers on this property” or something similar is sometimes used in a bidding war situation in hopes of gaining advantage over the other bidders. It is controversial and there are ethical and legal arguments against it. It certainly is to the sellers’ advantage but what happens if the buyer does not cap the amount and cannot close the deal when all is said and done? When the new Ontario government changes to the bidding process are announced, we will know whether Escalation Clauses will be for bidden or allowed. If permitted, will the seller have to inform all buyers that someone is using an escalation clause?

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