New lending rules scheduled to take effect next month are stimulating housing sales, according to local mortgage brokers. Jessi Johnson, president and CEO of the Jessi Johnson Mortgage Team, told the Georgia Straight by phone that his business has seen a “definite jump”, with many first-time home buyers trying to arrange financing for 35-year mortgages.

He attributed this to the federal government’s decision to reduce the maximum amortization period for government-insured mortgages from 35 to 30 years, effective March 18. According to Johnson, this lower amortization period will reduce affordability, particularly for first-time buyers, because monthly payments increase when the lending period shrinks.

“We have a lot of new applications coming in,” he said. “I don’t blame them.”

He pointed out that the average person earns around $50,000 per year. With a five-percent down payment, they can generally afford a $280,000 home at a four-percent interest rate and with a 35-year amortization period.

Johnson noted that if the mortgage is reduced to 30 years, the same buyer can only afford a $260,000 home. And he said if interest rates rise, as many observers predict, they’ll put an even greater squeeze on first-time buyers. At 30 years with a five-percent rate, this buyer would only be able to buy a home worth $230,000. “You can’t even buy a closet for that [price] in Vancouver,” Johnson said.

Joanne Vickery, president of the Mortgage Brokers Association of B.C., told the Straight by phone that brokers’ clients are rushing to get pre-approved before the deadline. She added that this is the second reduction in the amortization period announced by Finance Minister Jim Flaherty. In 2008, he prohibited government insurance on 40-year housing loans, capping the maximum at 35 years. “I’m not sure if the government strategized to deliver it that way,” she said of the step-by-step decrease. “It’s less of a hit to the consumer.”

Johnson and Vickery stated that it was unnecessary for the government to further reduce the amortization period to 30 years. However, Vickery emphasized that she’s happy the government didn’t raise the minimum down payment from its current level of five percent. “That would have really hurt our market,” she said.

Johnson mentioned that he recently met with officials of the Canada Mortgage and Housing Corporation, which insures mortgages, to get clarity on the new rule. He discovered that a buyer can still negotiate a 35-year amortization period, even if the deal hasn’t closed by the March 18 deadline. “You just have to have a binding contract,” Johnson said. “As long as your subjects-to are removed and you’ve paid your deposit, you can close whenever you like.”

He added that the new amortization rule will have a disproportionately negative impact on the Vancouver market, where prices are higher, as well as on first-time buyers, who tend to borrow more money up front. “A lot of our investor people, they’re putting 20 percent down anyway,” Johnson revealed. “If you put 20 percent or greater down, none of these rules apply to you.”

He also claimed that if the federal government was serious about addressing consumer debt, it would be focusing on credit cards, not on 35-year mortgages. “I think 35-year amortizations should still be available for those who deserve it—for people who choose not to max themselves out,” he said.

The Canadian Real Estate Association reported this month that in January, housing resales across the country reached their highest level since April 2010. Vancouver posted the highest monthly increase—14.2 percent on a seasonally adjusted basis. This far exceeded the national monthly gain of 4.5 percent.

In a news release, CREA chief economist Gregory Klump attributed the increase in sales activity in the first quarter of 2011 to Flaherty’s January announcement that mortgage regulations will be tightened. In addition to reducing the amortization period, the federal government has also mandated a lower limit (85 percent, down from 90 percent) in borrowing against home equity, and the removal of government insurance on home-equity lines of credit.

HST does not apply to resale homes

Georgia Straight, August 18, 2010

By Charlie Smith

A Vancouver mortgage broker says some real-estate agents are unaware that the harmonized sales tax does not apply to resale homes. In a phone interview with the Straight, Jessi Johnson said that even though the 12-percent HST has been part of public discussion for quite a while, there are a number of people in the industry who still aren’t clear on where it applies.

“There are a lot of false fears about HST,” Johnson said. “HST only affects new construction.”

He declined to identify the agents who were ignorant about this issue.

Johnson noted that the HST took effect on July 1, just as the housing market was undergoing a transition from a seller’s to a buyer’s market. “Anytime you transition in that period, you have a dead zone,” he claimed. “The problem is that in that dead zone, the false fears around HST came right around that same time. I don’t know if that was circumstantial, coincidental, or whatever, but it caused a really dead point in the market for me.”

He mentioned that during a two-week period in July, he had approximately one mortgage application, whereas his company normally processes 10 applications a week. “That was shocking,” Johnson said.

He emphasized that since then, the housing market has picked up.

CLICK HERE to see the article in the Georgia Straight