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Man 1: So Morey covered off what a conventional mortgage is, but there's... and all of these changes that apply as we've been talking with high ratios, so the government mandated changes apply to things, the three different changes: the investments, the refinance and the amount of down payment that's required.
However, just because that only applies to 80 percent financing or more, so less than 20 percent down, there's actually a lot of banks that are going to follow those guidelines all the way down the road. So it doesn't matter if you've got 35, 40, 50 percent down, a lot of banks are still going to follow these new guidelines.
The reason is kind of complicated. It involves how the banks raise their money in the markets and whatnot. But if they're going to be doing that, you can see that these changes. And there's a lot of lenders that are going to be following that. I'd say half or more. So it's going to have a lot of impact for any loans of value even though the mandated change only implies to 20 percent down or less.
So, rental income changes. In Vancouver this is huge because we've heard it's the percentage of properties, especially condo market rentals. It's definitely the most dramatic change. Ironically, this one isn't even mandated. This is simply something that's come down through CMHC and then all the other insurers have jumped on board with similar policies; not identical.
So we had three different insurers we talked about. We're not going to get into the specifics of who does exactly what type of product. But I can say that rental income is treated far less favorably than it was in the past. Now this includes rental income from multiple different sources.
If you've seen on purchases, you see mortgage helper, in law suites, nanny suites, basement suites. It doesn't matter what you call it. If it's a secondary suite within the property, there's a second and is rate, they're bringing revenue for that property, then that income is being far less favorably than it was.
It used to be that you could take a certain percentage of that income, say 80 percent is the number, and we would go, "OK, you've got a thousand bucks of rent. You've got $800 we're allowed to use, how much mortgage does that support?" The answer was $180,000 or something. So right away the person qualified for $180,000 more just by virtue of having that sleep in property.
Well, in Vancouver, we've got the whole authorized unauthorized suite issue, right? And if something's authorized, can we use it? If it's unauthorized can we use it? And the answers vary from insurer to insurer. So that's something where the broker's have to know every one of the guidelines and every one of the rules of the different institutions.
I want to give you an example of how the new rules are going to take effect. We're going to use the same example: 60,000, average cost, clean credit, et cetera. So this is assuming $1,000 basement suite. 680 to 515, the old approval amount. If you picture East Vancouver, almost every home has a basement suite. Picture Surrey, Delta, all these different areas. All these basement suites that we were previously able to bring into the mix, we can but in much lesser and more conservative treatment. That's a 24 percent reduction in how much somebody can qualify for based on that income. So 24 percent is going to translate into an effect on how many buyers can afford properties of a particular price.
Now rental income. I was talking about suites there, but it comes from multiple sources including three different ways. You've got your basement suite, but then you've got a pure rental property. You're living in your home, maybe have a rental condo and it's rented out.
The third one is for somebody... this third one is really where the rules are murky and it's going to be interesting to see how it plays out. When someone owns a home, especially a first time home buyer, they own their property, they want to upgrade to a new property, but they don't want to sell the first one. Maybe they've been there five years and built up significant equity. Perhaps the property could rent for a considerable amount so they want to get out of that property and move into a home. In that circumstance, that is where the treatment of that income, for the old property is not really clear. The reason being is they don't have it at this point in time.
So somebody who has a pure rental property and they've had it for an extended period of time, the new rules actually favor the treatment of that income over all else, as long as the people are declaring it and pay tax on it. If you don't declare it and pay tax on it, going forward, it'll be far, far harder to qualify. And people should be declaring it anyway because then you can offset their interest cost of the mortgage. So it makes sense to declare it and bring it into the map, but a lot of people still aren't doing it.
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New Mortgage Rules Presentation 2010 pt 1by MortgagesInVancouver523 views
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