Mortgage Broker

28 | winter 2017 cmba-achc.ca CMB MAGAZINE housingnecessity e factors that impact housing costs and affordability include the following: 1. Increased costs for new housing developments Housing development activity is essential to help alleviate housing shortages and increase the housing supply. However, the cost of development and construction has continued to rise for a number of reasons, such as: n Building code. As improvements or changes are made to municipal building codes, construction costs inevitably increase. e end user gets a better housing product, but the developer passes those costs on to the buyer. n Municipal fees. Municipal fees are charged for building and development permits. Development cost charges, school fees, road fees and other charges can amount to as much as 25 per cent of the budget to construct a development. It is challenging for developers to finance projects with high "so costs" that may not impact land value due to the risk of non-completion and concern about recovery from lenders. Developers oen need to sink many of their own dollars into paying for municipal costs; if they do not have the funds, developments oen don't get built. n Municipal Bylaws. Many municipal bylaws require developers to dedicate land to the municipality for schools, parks and other services. Land dedication for municipal use can be extraordinarily costly; that expense is ultimately passed on to the end user. n Slow and frustrating development process. Municipal development approvals can take years to obtain. It can take as long as five to seven years to bring construction product to the market, over which time the land and development carrying costs are passed on to end buyers. n Urban planning and livable community concepts. Urban planners seek to create "livable community concepts." Integrated land-development planning results in vastly improved master-planned communities. While this is a very laudable long-term goal, like other planning initiatives it comes at a cost that is passed on to homebuyers. 2. High-ratio insurance fees Most Canadians finance housing costs by way of a mortgage. High-ratio mortgage insurance is necessary to mitigate the risk of a mortgage default. However, stringent qualification guidelines for these high-ratio mortgages have mitigated that risk. Although mortgage rates are at historic lows, the high-ratio insurance premiums for homebuyers with a minimum down payment continue to rise. Premiums have steadily risen over the past five years, and it is not clear how these increases are justified. e CMHC should not profit from insurance premiums, and should justify each increase by ensuring the program is revenue neutral. According to the Canadian Real Estate Association (CREA), the country's average home purchase in September 2016 was $474,590. Remove the markets of Toronto and Vancouver, and this decreases to $358,884. Some public commentary has been critical of buyers using second mortgages to assist with obtaining a conventional mortgage in lieu of obtaining a single high-ratio insured first mortgage, and has suggested this is a dangerous practice that will sink buyers deep into debt. However, given the challenges around securing high-ratio mortgages, this is being considered by additional provinces, and appears to be a legitimate and desirable alternative. 3. Regulatory change Regulatory change has an impact on affordability. Concerns raised over new mortgage rules implemented in November and January, EXAMPLE OF INSURANCE COSTS AS OF FEBRUARY 1, 2017: $500,000 Purchase price $ 25,000 5 per cent down payment --------------- $475,000 Mortgage required $ 17,100 Current CMHC insurance premium (3.6 per cent) -------------- $492,100 TOTAL MORTGAGE EXAMPLE OF INSURANCE COSTS AS OF MARCH 17, 2017: $500,000 Purchase price $ 25,000 5 per cent down payment --------------- $475,000 Mortgage required $ 21,375 Current CMHC insurance premium (4.5 per cent) --------------- $496,375 TOTAL MORTGAGE Here is an example of how the costs of high-ratio insurance premiums have recently increased: In this example, a first-time homebuyer using the B.C. second-mortgage down-payment assistance program will experience: An increase in insurance premiums from 3.85% to 4.5%. In dollar terms, this would be an increase from $18,288 to $21,375. To put this premium cost in perspective, the buyer's second mortgage would be for $12,500. Their insurance premium is 171% of the down-payment assistance received from the B.C. government's second-mortgage program and 171% of their own down-payment funds. From this perspective, the insurance premiums are extraordinarily high and appear usurious.

• Cover