Deposits in Real Estate: BC Court of Appeal Clarifies

The B.C. Court of Appeal recently resolved a conflict between two of its previous decisions, clarifying the effect of a standard provision in real estate contracts that many of the Province's real estate professionals may take for granted. The issue is whether a seller has the right to keep a deposit even if it suffers no damage as a result of a purchaser's failure to complete, and the Court of Appeal's recent uncertainty on this issue has caused confusion about many of the standard form real estate contracts currently in use in the Province.

In the most recent decision, Tang v. Zhang, 2013, BCCA 52, the court was asked whether the Greater Vancouver Real Estate Board's standard form Contract of Purchase and Sale gives a seller the unconditional right to keep a deposit when a buyer's breach of contract has not caused the seller to suffer clear monetary losses. Specifically at issue was the "time of the essence" clause, which states that if the buyer fails to complete the purchase, the seller can terminate the contract, and the amount paid by the buyer as a deposit "will be absolutely forfeited to the seller... on account of damages, without prejudice to the seller's other remedies." Read more...

Bank of Canada Interest Rate Decision

September 4, 2013 

 The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 1 per cent. In its accompanying statement, the Bank highlighted that an uncertain global economy is delaying an expected rotation of growth in Canada toward exports and investment. 

This means that the burden of economic growth will remain on households at a time when most households are deleveraging and looking to slow consumption. All of this adds up to a Canadian economy that will grow below trend in 2013, likely at a rate of around 1.5 per cent.  Below trend growth will translate to continued subdued inflation, which the Bank anticipates will return slowly to its 2 per cent target in 2014. 

As for the Bank's tightening bias, language around the withdrawal of monetary stimulus has been significantly moderated. The Bank anticipates a gradual normalization of policy interest rates as conditions for inflation, growth and household debt normalize. Rising long-term Canadian interest rates, along with somewhat soft economic growth through the first half of 2013, have taken some urgency out of future monetary policy tightening. In particular, higher long-term rates will further slow growth in household debt via higher mortgage and other key lending rates which will allow the Bank to push increases in its overnight out to late 2014 or early 2015.

CREA Economics Now, September 04, 2013 edition

A New Composting Option

Finally there is a composting service available in Victoria that combines affordability and convenience. Here what we stumbled on. Worth having a look: www.refuse.ca 

Free real estate seminar in Sidney!

 

Join us for a fun seminar at the library this coming Saturday November 03, 2012. 
Click here for more info: Sidney Seminar

A strong endorsement of Canada's financial sector

October 26, 2012

During a think tank meeting in Toronto Yesterday, IMF Chief Christine Lagarde sang the praises of Canada's leadership in the financial sector and the control of national household debt: "there are important lessons that Canada can teach the rest of the world about how to build a stronger, safer financial system". Here a link to the full article in the Wall Street Journal: http://blogs.wsj.com/canadarealtime/2012/10/26/lagarde-sings-canadas-praises-at-gala-dinner/

New Changes To Mortgage Rules

June 21, 2012


 
This morning, the Minister of Finance announced changes to the standards governing government-backed insured mortgages: the maximum amortization period was reduced from 30 years to 25 years; the maximum amount Canadians can withdraw in refinancing their mortgages was lowered to 80 per cent from 85 per cent of the value of their homes; the maximum gross debt service ratio was fixed at 39 per cent and the maximum total debt service ratio at 44 per cent; and  the availability of government-backed insured mortgages was limited to homes with a purchase price of less than $1 million. CREA has continually stressed the need to avoid changing the minimum down payment. Today's announcement confirms Canadians will continue to be able to purchase a home with five percent down. The changes announced today will come into effect on July 9, 2012. Details of the announcement can be found here.  Of note, the VREB REALTORŪ Market Survey shows that an average 23% of purchasers in Greater Victoria required insured mortgages in the first 5 months of 2012.       

FREQUENTLY ASKED QUESTIONS (From Department of Finance Canada) 

 Q. Why is the Government making these changes at this time? 
A. These measures will support the long-term stability of the Canadian housing and mortgage markets and promote savings through home ownership. They are intended to be timely, targeted and measured. The measures will reinforce the importance of borrowing responsibly and using home ownership as a savings vehicle. The Government actively monitors developments in the housing market and is committed to taking action when necessary. 

Q. What will be the impacts of the adjustments to the rules for government-backed mortgage insurance on the Canadian economy? 
A. The adjustments to the rules for government-backed mortgage insurance will provide significant benefits to the Canadian economy by supporting the stability of the housing market and promoting savings through home ownership. The short-term impact on the housing market is expected to be manageable, given that the majority of Canadian families are already taking a prudent approach in managing household debts. In the long term, these measures are expected to have a positive impact on the economy through higher savings and a lower number of financially vulnerable households.
Q. When do these measures take effect? 
A. The new measures will take effect on July 9, 2012. 

Q. Are further measures expected? 
A. The Government actively monitors developments in the housing market, consumer debt and the economy, and is committed to taking action when necessary to support the long-term stability of the housing market and protect the investment of Canadian families.
Q. Do these measures apply to multi-unit buildings? 
A. These standards apply to mortgages on residential property with four units or less. 

Q. Why is the Government lowering the limit on refinancing again? 
A. The new measure announced today will reduce the maximum amount on refinancing to 80 per cent from 85 per cent of the value of the home. Limiting the amount of refinancing will promote saving through home ownership and limit the shifting of consumer debt into mortgages guaranteed by taxpayers. 

Q. Why is the Government lowering the maximum amortization period again? 
A. The new measure announced today will reduce the maximum amortization period to 25 years from 30 years. Limiting the maximum amortization period will reduce the total interest payments Canadian families make on their mortgages, helping them build up equity in their homes more quickly and pay off their mortgages sooner. For example, reducing the amortization period from 30 years to 25 years on a mortgage would result in a moderate increase in the monthly payment. However, over the life of the mortgage, this modest increase would result in a significant reduction in the total interest payments. For a $350,000 mortgage at 4 per cent interest rate, the interest savings could be over $45,000. 

Q. Why is the Government limiting the maximum gross debt service (GDS) and total debt service (TDS) ratios? 
A. The GDS ratio is the share of the borrower's gross household income that is needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. The TDS ratio is the share of the borrower's gross income that is needed to pay for home-related expenses and all other debt obligations, such as credit cards and car loans. The new measure announced today will set the maximum GDS ratio at 39 per cent and reduce the maximum TDS ratio to 44 per cent. These debt service ratios measure the share of a household's income that is required to cover payments associated with servicing debt. Both measures are already used by lenders and mortgage insurers to assess a borrower's ability to pay. Setting a GDS limit and reducing the TDS limit will help prevent Canadian households from getting overextended and reduce the number of households vulnerable to economic shocks or an increase in interest rates. 

Q. Why is the Government introducing a maximum allowable price for insured mortgages?
A. The new measure announced today will establish that government-backed mortgage insurance is only available for a new high loan-to-value mortgage if the home purchase price is less than $1 million. Because homes priced at or above $1 million would not be eligible for government-backed high ratio insurance, borrowers for these homes would require a down payment of at least 20 per cent. Introducing a maximum allowable price will ensure that government-backed mortgage insurance operates the way it was originally intended: to help working families and first-time homebuyers. This measure is expected to have a negligible impact on working families and first-time homebuyers as the vast majority of these borrowers purchase properties priced below the threshold. Concerns about borrowers.

Q. I already have an insured mortgage. How will these changes affect me? 
A. Mortgage insurance is good for the life of the mortgage. Borrowers renewing their insured mortgages will not be affected by these changes. For example, if a borrower had a 30-year amortization and there are 27 years remaining on the mortgage, the mortgage can be renewed with a 27-year amortization, as long as no new funds are being added to the mortgage. 

Q. What is required to qualify for an exception to the new parameters? 
A. The new measures will apply as of July 9, 2012. Exceptions will be made to satisfy a binding purchase and sale, financing or refinancing agreement where a mortgage insurance application has been made before July 9, 2012. While the changes come into force on July 9, 2012, any mortgage insurance applications received after June 21, 2012 and before July 9, 2012 that do not conform to the measures announced today must be funded by December 31, 2012. 

Q. Will a purchase and sale agreement dated prior to July 9, 2012 be considered binding if there are outstanding conditions that have not been fulfilled prior to July 9, 2012? 
A. Yes, if the date on the purchase and sale agreement is earlier than July 9, 2012, and a mortgage insurance application has been made prior to that date, the new parameters will not apply, even if the conditions of the agreement have not been waived. 

 Q. Will the new refinancing rules allow a borrower with a mortgage above 80 per cent loan-to-value (LTV) to refinance by extending the amortization period? 
A. No. Effective July 9, 2012, borrowers will not be permitted to refinance a mortgage above an 80 per cent LTV, unless the borrower has a binding refinance agreement dated prior to July 9, 2012, and a mortgage insurance agreement has been made prior to that date. 

Q. I have a written mortgage pre-approval from a lender, dated before July 9, 2012 with a 30-year amortization. Will I still be eligible for a 30-year amortization if I don't sign an agreement of purchase and sale until July 9, 2012 or later? 
A. No, a mortgage pre-approval without an agreement of purchase and sale is not sufficient to qualify for a 30-year amortization. You may have a 30-year amortization only if your agreement of purchase and sale is dated before July 9, 2012 and you have made a mortgage insurance application before July 9, 2012. You may wish to discuss with your lender to revise your mortgage pre-approval using the new parameters announced today. 

Q. Will the new parameters apply to assignment ("switch" or transfer) of a previously insured loan from one approved lender to another? 
A. No. As long as the loan amount and amortization period are not increased, the new parameters will not apply to a switch/transfer/assignment of the mortgage to a different lender. 

Q. If I sell my current home and buy another, will the new parameters apply if I transfer the outstanding balance of my insured mortgage to the new home? 
A. As long as the outstanding balance of the insured loan, the LTV ratio and the remainder of the amortization period are not increased, the new parameters will not apply when the mortgage insurance is transferred from one home to another. 

Q. What if I need to increase the amount of my insured loan when I sell my current home and buy another? 
A. In this situation, the new parameters will apply for any insured loan. 

Q. If I bought a condo that is not expected to be built for another two years, will the new parameters apply? 
A. If you bought a condo and have made a mortgage insurance application on or before June 21, then the new parameters would not apply. If you buy a condo and make a mortgage insurance application after June 21, the new parameters will apply if the mortgage loan is not funded by December 31, 2012.   

Source: Maggie Kerr-Southin APR, Manager, Communications, Victoria Real Estate Board - www.vreb.org 3035 Nanaimo Street, Victoria BC V8T 4W2 - Direct Phone: 250.920.4652

Penny-pinching on repairs is a perilous path

September 16, 2010

Dear Condo Smarts: We are writing to you in the hope you will publish our letter for all condo owners in B.C. to read. We live in a 263-unit, 12-floor concrete building that was constructed in the late 1970s. This was a well-designed and well-finished building of which we were once proud. Over the past 30 years, our strata has done nothing about maintenance and repairs, other than emergency failures in such things as hot water boilers and elevators. Now our deferral has come back to haunt us. Each owner is faced with an average $19,000 assessment just to maintain and upgrade the exterior, not including the roof. Our windows have failed, our decks and balconies are in serious failure and the masonry detailing is in need of serious attention. We have figured out that if each strata lot had paid an extra $30 per month over the past 34 years, our buildings would have been routinely repaired, the interest would have covered inflation costs, and we wouldn't be doing this at a time when construction costs are at a record high. We encourage every strata to make long-term plans. Carol Chow, Vancouver

 Dear Carol: You are absolutely correct. But the legislation does not require strata corporations to plan for future costs other than minimal reserve contributions. The behaviour pattern your strata and many homeowners provincewide have developed is "to run to failure." It is often too easy to defer maintenance issues because they don't directly affect our daily lives, but once the roof fails, the windows leak, the elevator seizes, pipes burst, or the parkade floods, it's too late. Costs have accelerated 30 to 50 per cent beyond normal repairs and your community is faced with emergencies, insurance claims, internal disputes and lawsuits. The building enclosure maintenance outline, below, courtesy of RDH Engineering, is a simplified generic checklist to help your strata begin the planning process. All stratas should clip and use this checklist. Remember no two buildings or communities are alike. Each one requires a thorough assessment to ensure a reliable report. The report should combine both annual operation requirements, long-term renewals, current building conditions, and standards of performance and materials appropriate for the building. At your next annual meeting, ask yourselves how you can budget for maintenance, operations and renewals without inventories, reports and a proper plan? Tony Gioventu is executive director of the Condominium Home Owners' Association. e-mail tony@choa.bc.ca. The association's website is www.choa.bc.ca.

Read the full Article as published in the Times Colonist

Comparing the US and Canadian Real Estate Markets: Canada Coming Out On Top!

What is so surprising is the real estate market in Canada sprung back faster than expected. The decrease reversed throughout the spring of 2009, and the sales numbers escalated through to summer. In the winter of 2009/2010, realtors were announcing sales multiplying in excess of 100%. At the same time the real estate prices even overtook the pre-crash prices. There are several reasons, why the Canadian market did (and and is still doing) better than most of the world's real estate markets. Speaking to the experts, the majority say that this recovery is for the most part due to the low interest rates put in place by the Bank of Canada. US rates were similarly low as well, but there are reasons why the low-rate plan assisted in Canada but not so much in the States: High risk loans to borrowers for mortgages was commonplace in the US the opposite toCanada. Canada gave these subprime loans to between 5 and 10% of the population, unlike the US who's subprime loan market was a colossal 22%. The Canadian banks also have consistently good reviews, according to the World Economic Forum, Canadian banks are the soundest in the world. In addition, the solid financial stance has also helped Canada avoid the subsequent credit crunch. Our unemployment rate has risen, as it has in the US; however, the increase wasn't as bad, and our economy has been slowly adding jobs again since last summer. The personal bankruptcy position has been helped by the sound social system that Canada has in place. To sum up, the Canadian real estate market is on a solid footing. Where there is good news, some of us look to the negatives and say that a real estate bubble completely separate from what has gone on, is getting ready to hit us. I don't believe this is the way forward, for a few reasons. Interest rates are being kept steady until at the summer, said the Bank of Canada. Rates will grow as summer approaches and we have already seen some mortgage rates increasing a little. We are also coming closer to the removal of the First-Time Home Buyers' Tax Credit, which is in all likelihood going to have an impact on the real estate market. At last the number of houses entering the real estate market is gradually growing since the fall figures were published. As Jay Banks from Vancouver Lofts, adds: "There has been an increasing influx of new listings over the last 2-3 months, which has helped to steady the inventory level."

These points will inevitably cause the Canadian market to slow down in the second half of 2010, with more settled prices and levelled sales.

North Saanich Real Estate

Sidney North Saanich properties

Real estate in Sidney North Saanich

Rental Income For Qualifying Buyers

April 07, 2010

By Derek Scott, The Canadian Press

VANCOUVER, B.C

- Buying a house in the hot housing markets of Victoria, Vancouver, Toronto and other major cities in recent years has been a possible dream for some first-time homebuyers only because many of those houses had suites they could rent out. But new rules coming into effect April 19 will all but wipe out that advantage in the eyes of banks handing out mortgages. "It makes it much more difficult for people with rental properties to qualify for their own mortgage on their personal residence," said Vancouver mortgage specialist Patrick Mulhern.

The new regulations are designed to prevent speculation in the market, said Jack Aubrey, of the Canada Mortgage and Housing Corporation. But Vancouver mortgage agent Mike Averbach said the new rules will do little to prevent investors from gambling in the housing market. "They haven't decreased risk," he said. "They're just not allowing you to use the income." Currently, landlords can use 80 per cent of their rental income to offset monthly mortgage payments. That means, if they receive $1,000 per month in rental income, they can use $800 to offset a $1,200 mortgage payment, leaving only $400 to be debt financed.

But under the new rule, only 50 per cent of a landlord's rental income will be used. Even then, that money will not be used to offset their monthly mortgage payment. It will be added to their total income, forcing them to qualify for the entire monthly mortgage. For instance, a person earning $100,000 per year in regular income plus $12,000 per year in rental income will have a total income of $106,000 with which to qualify for a mortgage on their own home. Rental income is essential for many of his clients, Averbach said.In cities like Vancouver, where the average home price in February was more than $662,000, rental offset is the only way many people can qualify for a mortgage and the new rules will keep many of his clients in condos rather than houses, he said. "Putting a renter in your basement is not speculative, it's reality," he said. "It helps you pay your mortgage." 

The rule changes also make it more difficult for people to buy a property separate property to use as a revenue generator.CMHC will no longer offer high-ratio financing on rental property not lived in by the owner. That means someone looking to buy a house as a rental investment will have to come up with a 20-per-cent down payment on the property, as opposed to five per cent before the rules changed. The changes haven't worried groups advocating for tenants. Jeordie Dent, of the Federation of Metro Tenants' Association in Toronto, where vacancy and availability rates have dropped over the last year, said he doesn't see a negative impact on renters. Instead, he said his group welcomes the changes. Dent said too many people become landlords without the financial or intellectual wherewithal to properly manage their properties. "Anything that strengthens mortgage rules, from our perspective, is a good thing."


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