This month the government came out with a few more rules with regards to downpayments. These were put in place to help cool the market and to help ensure that buyers are fully capable of affording a property. Will that actually help is another story!
What are the rules?
Properties under $500,000:
Same rules apply and you need a minimum of 5% down payment
Properties between 500,000-1,000,000:
You will need 5% on the first 500K and 10% on the portion between $500,000-$1-Million. This is how it will look for a property priced at $800,000 for example:
5% on $500,000 = $25,000
10% on $300,000 = $30,000
Total MINIMUM downpayment will then equal $55,000.
Previously you could have purchased the same property with 5% down or $40,000. Will this extra minimum downpayment really slow down the market? I am doubtful as most buyers are buying with more than the minimum requirement. It may force some first time buyers to save for an extra couple of years but overall I don’t expect this to dampen the Vancouver market.
Also it is important to remember that any time you are buying with less than a 20% down payment the lenders will require CMHC (Canada Mortgage and Housing Corporation) Insurance. This is blended into your monthly mortgage payments. While interest rates still remain VERY low it’s a great time to speak with a mortgage professional to get a pre-approval started. I work very closely with a few and would be happy to recommend one that would be a good fit for you.
Property Transfer Tax Has Also Changed!!
Property Transfer Tax is a tax required by all purchasers in British Columbia except for a few exceptions with first time home buyers. It is calculated as such:
1% on the first $200,000
2% on the remainder
For the same $800,000 property you will be looking at a one time Property Transfer Tax payment at closing of $14,000.
The change is now for any purchaser buying a brand new building under $750,000 will be exempt from this tax and any buyer paying over $2,000,000 will pay 3% on their portion that is over $2-Million. A great calculator can be found here (http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand).
How will this effect the market? It will make planned investors more attracted to pre-sale developments to save their property transfer tax and it may heat up the market before $2-Million but I do not believe it will have a significant impact. For those buyer $2 – Million + homes the slight increase in property transfer tax will likely not be a deal breaker.