How did the Foreign Buyers Tax (FBT) impact local Ontarians?
The Foreign Buyers Tax was imposed to deter foreign buyers from investing in Ontario and inflating, home prices which were becoming unaffordable to local residents. Imposing the tax deterred foreign investors, and resulted in home values declining by 25-35% in the Greater Toronto Area.
This measure only helped FUTURE-HOME BUYERS.
How did this impact local residents who were in the middle of purchasing a home?
1. Decline in current house price
2. Decline in Pre-Construction home appraisal – even though purchase price is binding
3. Decline in how much banks are willing to lend
What Kathleen Wynne stated DAYS before the Foreign Buyers Tax was implemented
April 19th, 2017, "What we're aiming to do is to bring in some initiatives that will help people in that whole continuum of housing, right from rental through to purchasing a home, without having unintended consequences, because that is my fear in a market."
With this kind of information, how could buyers who purchased pre-FBT be prepared for the consequences that were to follow?
The Stress Test
What is the Stress Test, and what are the implications to home buyers mid-transaction?
Real Estate Broker Explains the Stress Test. For the full article, go here: https://www.shupilov.com/blog/canadas-new-2018-mortgage-stress-test-explained
“As of the 1st of January 2018, all Canadian buyers borrowing from a federally regulated lender are subjected to the OSFI Mortgage Stress Test.
Lenders will now have to qualify all conventional mortgages using the Bank of Canada’s 5-year benchmark rate, which is currently set at 4.99%, or at the current contracted rate + 2% if that rate exceeds the benchmark rate. So, if you are currently pre-approved at 3.5%, you will now have to qualify as if your interest rate were 5.5%, which could significantly reduce your buying power.
The new stress test will automatically reduce your borrowing capacity by a minimum of 18.5%. The larger the gap between your pre-approved interested rate and the stressed rate will further impact/reduce your borrowing capacity.”
FACT – With the Implementation of the Stress Test, the Bank of Canada has increased interest rates 3 TIMES to date!
1. July 2017 +0.25%
2. September 2017 +0.25%
3. January 2018 +0.25%
What role does Tarion Play?
Tarion is a private, not-for-profit corporation that is funded entirely by registration, renewal, and enrolment fees paid by builders. Tarion does not receive any public funding through tax dollars. Their only accountability to the Government is to send in a report, once a year.
Tarion is the administrative authority for the Government of Ontario, tasked with administering the Ontario New Home Warranties Plan Act by:
investigating homeowner warranty claims
resolving warranty disputes between homeowners and builders
providing deposit and delayed closing protection for new home buyers
prosecuting illegal builders
As well, Tarion can and is legislated to make by-laws that:
Governs and sets terms and conditions of registering vendors and builders
Maintains the guarantee fund and sets procedures for claiming and determining claims for compensation from the fund.
With a Board of Directors made up of mostly Developers… who is Tarion most accountable to? The Corporation or the Purchaser?
Can Tarion be objective?
Why is Ethics and Doing What Is Right important?
“Conduct is a lens into the culture of organizations, and conduct failings seem to be widespread across several jurisdictions, cut across financial services organizations and involve both the retail and wholesale sides of business. Improving conduct within the industry is an essential part of rebuilding trust and supporting future sustainable growth. Further, the regulatory focus on conduct is expected to persist and firms will continue to face pressure to be alert to poor behavior.”