Verdant

1. We were planning on renting for a year, but with the way the market is on the Island, Im not entirely sure now. Rentals seem rather difficult to come by and not of the best standard - plus they seem so expensive compared to here even when the exchange rate is taken into account. I realise if we decide to buy we will either have to take insurance or will make a down payment of 25-30%, which will require passing the new stress test linked to current interest levels. I've read that the rate is likely to rise over the next year to over 5% by the end of 2018. With this new requirement does it make buying insurance more worthwhile (and increasing monthly overpayment) or should we still go for max down payment?

2. Would you pick a 5 year fixed rate over an open mortgage in the current climate? We fixed in the UK in 2013 and ended up overpaying for 3.5 out of 4 years due to the sluggish economy following the recession - it wasn't too much but at the time with the interest rate so low it was assumed that it was only likely to increase - not fall further....!

3. What is a reasonable limit that we should set (not necessarily the lenders) with a gross income around 200k for a family of two providing that we put down at least 25%? We are generally modest in our spending habits and will only be running one car for at least the first few years.

4. Also, is it likely that these new changes will cool the market a little or is the demand so stoked that asking prices will remain strong? I'm starting to wish we decided to move to Northern BC... some of the housing for sale currently look very questionable. I'm hoping that's just the stuff which cant shift during spring-fall. I saw a handful of properties in the area that looked lovely/ok during the summer (at least from the photos ).

Cheers!

scilly

The advantage to renting for the first year is that it allows you to really get to know where you want to live ............. if you buy and then decide you really prefer to live elsewhere, then it will cost you more money.

It is more expensive that in the UK to sell a property as the seller pays more of the fees

Also I would never buy a house from the ad, without seeing it 2 or 3 times, hiring a housing assessor to do a full assessment of the house and any potential problem(s).

Note the seller is SUPPOSED to tell his/her realtor about all problems (including whether there has ever been a marijuana grow op there). The selling realtor is SUPPOSED to pass on that information to all interested buyers and their agents.


Note the word "supposed".


If you buy quickly, you will be a new immigrant with little record in this country, and you MAY be asked to provide a larger down payment.

I wasn't aware that you had a choice between taking out insurance or a down payment .............. unless you will be paying in full in cash? That could also be tricky in the present climate in BC where "overseas transactions" are being investigated!

Verdant

Thanks Scilly for the reply - yeah my gut feeling is to still wait it out (how high can the prices climb in a year? ). We're pretty certain of the areas we want to live in (we want a large garden 0.5 - 1 ac ideally) which narrows down our choice quite a bit in the area that we are going to be working in.

I could be mistaken, but I thought that if you did not have a down payment of at least 20% then you had to take out insurance?

Almost Canadian

This is, in my opinion, not correct. Assuming a monthly rent of $1,500, one would have to sell a property worth $500,000 for the realtor's fees to cost significantly more than the rent paid.

Are there that many neighbourhoods on the Island that are so different to others and one's work location that one is likely to buy in the wrong neighbourhood?

dbd33

That's correct (well the percentage may have changed but the idea is correct). CMHC issue the insurance and collect the premium on it. Something to note is that the premium is calculated on the day of house purchase based on the debt ratio then. If you win a small lottery the next day and reduce the amount of the mortgage, the premium is not reduced. This may be a consideration if choosing, say, good furniture vs. increased down payment.

dbd33

I would rent. One could learn a lot about houses and areas in a year of attending open houses.

In response to the other original questions:

I always choose the fixed rate as I have little interest in financial matters and don't want to have be ready to switch. If I can afford the payment at the fixed rate I don't worry about what have been.

I would say $600,000+deposit is as much debt as I would want but, of course, it's not enough to buy anything.

YMMV, it's all personal preference.

Piff Poff

When we moved, there was 0% rental availability in Red Deer and people were sleeping in tents in public spaces, we bought, the market was hopping prices were rising daily, it was mad. It did us well, even though we moved on 8 months later as we wanted a older subdivision.

You have to do what you feel comfortable with.

scilly

I didn't mean that buying and then selling soon after would cost more than renting, but that it costs more over here to sell because of fees than it does to sell property in England ........ at least, that is what I have gathered from what others have posted on here.

Aviator

Realty fees are 7% of the first $100000 then 1 - 2% of the remainder.

Extremely rough calculations, no idea how accurate it might be.

$600000 house, sellers realty fees around $15225 with GST (assuming 1.5%). If one buys and has a mortgage, there would be the mortgage interest to factor to the cost of living per month. If selling before the mortgage term is up, assuming a fixed term, there would be early repayment penalties.

On a 25 year mortgage, with $100,000 down, interest in the first year would be around $14000, assuming a 3% interest rate.

From rough calculations, buying and selling at 12 months, cost for the year, around $30,000+ealry repayment penalties. CHMC premium on an 83% loan seems to be 2.8% of the loan amount, $14000.

Any capital increase in the value of the property would help offset this cost.

I rented for 6 months, figured out the area and then bought. Allowed for greater portability. For me it was a good move.

What is good for one, is not always good for another. The property market was way different when I arrived in Canada. Get some professional advice before committing to one or the other.

Aviator

Realty fees are only a part of the cost of selling though; legal fees, early repayment penalties for the mortgage, CHMC insurance premiums paid, interest on the loan accruing through the year. A $500000 mortgage would accrue around $14000 in interest in the first year. Add all these costs to together and it soon becomes worth looking at renting for a short term proposition.

The loan interest for the year, plus property taxes would be similar to paying $1500 a month in rent. The realty fees to sell, plus other costs would be in top of this.

Property price movements of course can factor in. If prices are rising rapidly, this would put a different perspective on buying/vs renting.

withabix

Dont forget Property Tax. Depending on where you are, that can quite easily be another $5500 per year for an average house....

If you rent, you're already paying that as part of your rent....

Danny B

Jeezus H Christ, I had no idea they charged that much

Verdant

Thanks for the input - it's really helpful having different perspectives. We will definitely seek professional advice upon landing and watch the market closely.

Ideally, we would have liked to rent for 6 months and buy thereafter, but with the current moment, i'm trying to figure out if that is wise. Having had a look at the housing forecast by BCREA, the next couple of years are likely to be peak migration / demand for the Island (assuming that the trend/cycle since the 00s continues) and therefore buying at this peak seems unwise if we need to move in a relatively short time (<5 years). We're not planning on doing so and would be looking for a longterm home - but you never know right? Having already rented 6 months since selling our home in the UK, it would be good to get back to having a home (especially a garden). Buying so soon after arrival with all the costs involved is likely to stress us financially, but having a solid basecamp seems much more reassuring than living in rental limbo.

What with the new stress test requirement, I think the market is going to go at least steady for the first 4 months of 2018 as people adjust emotionally / financially to the change before continuing to ramp. So there might be a small window where demand and supply might be more measured for the first couple of months of 2018 - buying now would definitely be a bigger commitment to Canada and the Island, but moving to the island to rent for a number of years and not having that garden space would make me question why we moved in the first place and i'd probably be rather unhappy. That said the Island is arguably one big garden, so there's that.

scilly

But you would have to buy "sight unseen" if you want to move straight into your own house as soon as you arrive ..............

and that, IMHO, is most unwise!

You probably will have to rent for 2-3 months on first arrival ......

look around at houses,
decide on one,
submit offer with all conditions included (including house inspection by registered inspector),
apply for mortgage.
Then assuming your offer is accepted, 1 - 2 months before closing and moving dates.


why not rent for 6 months, and take your time choosing area and house?

Verdant

Oh I agree I would never buy without seeing the property multiple times. I think the plan is to land find flexible accommodation and then actively look for properties. Hopefully, within 6 months we will have found something suitable. It's the finding the rental which I'm more worried about - there aren't many and most are around $2000/2500, which considering we're only paying £650 atm (which is higher than our previous mortgage) for a 2 bed is quite a difference.