Flaherty’s New Rules Change the Rental Formula for Home Owners
When Finance Minister Jim Flaherty attempted to cut down on real estate speculators with the new lending rules that came into effect on April 19, what he really did was make it more difficult for homebuyers to obtain a mortgage.
With the high price of real estate in major cities such as Vancouver and Toronto, in the past the only way for some buyers to qualify for a mortgage was to choose a house with an ensuite apartment that they could rent out to help offset the extremely high cost of home ownership.
While the new rules are designed to deter real estate speculators, they also make it impossible for homebuyers to purchase a home and factor in the income generated from rental units.
In the past, potential homeowners were able to factor in the income from a rental unit in the building. For example landlords, prior to April 19, could use 80 per cent of rental income to offset mortgage payments. So, if a tenant paid $1,000 a month in rent, the landlord can use $800 toward their mortgage calculation.
However, under the new rules a landlord can only use 50 per cent of the rental income. But, the money doesn’t directly offset the mortgage payment, instead it is added to their total income, meaning that they have to qualify for the entire mortgage.
With potential homeowners not being able to use the rental offset amount to qualify for a larger amount, fewer people will be able to move to a house and will have to stay in condominiums or continue renting.
While this is bad news for real estate agents and their clients, the Federation of Metro Tenants’ Association in Toronto welcomes the changes to the mortgage affordability rules. The association feels that too many people become landlords without the proper financial or intellectual ability to properly manage their properties.
Good or bad, the new regulations are going to make a difference to affordability.
