Canadian homeowners who are struggling to make ends could get some relief from a new Mortgage Charter announced by the Canadian government.
On Tuesday, the federal government announced its 2023 fall economic plan to build a strong economy and among its measures is the new charter.
Deputy Prime Minister and Minister of Finance Chrystia Freeland said the new plan is aimed at supporting the middle class and building more housing.
“Our economic plan is about building a strong economy that works for everyone, and this Fall Economic Statement is the next phase of our plan. With a focus on supporting the middle class and building more homes, faster, we are taking action on the priorities that matter most to Canadians today—and we will continue doing everything we can to deliver for Canadians from coast to coast to coast,” Freeland said in a written statement.
In response to Canadians feeling the squeeze regarding rising interest rates and lack of affordable housing, the government is focussing on two key challenges.
First, in an effort to stabilize prices, make life more affordable and protect Canadians with mortgages, the government has introduced the new Canadian Mortgage Charter which provides tailored mortgage relief for Canadians if they are in financial difficulty, and this will be done through financial institutions.
Homeowners who are dealing with financial difficulty related to increasing mortgage payments on their principal residence can expect to hear from their banks, who will provide them with a fair, reasonable and timely relief plan to efficiently support them during this precarious time.
According to the government, Canadians can expect the following in the new Canadian Mortgage Charter:
1. Temporary extensions of the amortization period for mortgage holders at risk;
2. Waived fees and costs that would have otherwise been charged for relief measures;
3. Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal;
4. Contacting homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options;
5. Giving homeowners at risk the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties; and,
6. Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization.
The second challenge the government is addressing is to accelerate its work to build more affordable housing. As a result, the economic statement is providing billions of dollars to finance more homes, as well as crack down on short-term rentals that can be used for Canadians to live in.
“To build more affordable housing for the most vulnerable Canadians, the 2023 Fall Economic Statement announces an additional $1 billion over three years, starting in 2025-26, for the Affordable Housing Fund. This investment will support non-profit, co-op, and public housing providers to build more than 7,000 new homes by 2028,” the government said in its report.
Additionally, the federal government is providing an additional $15 billion in new loan funding to build more rental apartments starting in 2025-26. The government predicts this will support over 30,000 new homes across the country. By 2031-32, the program is expected to build over 101,000 new homes.
REMOVING GST FROM NEW CO-OP RENTAL HOUSING
In an effort to build more homes faster, the federal government is removing the Goods and Services Tax (GST) from construction of new rental housing projects, such as apartment buildings, student housing, and seniors’ residences.
This change will apply to programs that begin construction between September 14, 2023 and the end of 2030, and that complete construction before 2036.
“To protect Canadian renters from renovictions, the removal of GST will not apply to substantial renovations of existing residential complexes. This measure is intended to stimulate new supply, not take supply off the market. The federal government has also called on provinces that apply sales tax on new rental housing, or goods and services used in their construction, to likewise remove their provincial taxes,” the report read.
SHORT-TERM RENTALS
The federal government is taking stricter measures to mitigate short-term rentals as thousands of homes across the country are being used as short-term rentals for tourists, and ultimately lessening the amount of homes available for Canadians in the housing market.
“In Montréal, Toronto, and Vancouver alone, there were an estimated 18,900 homes being used as short-term rental properties in 2020—a number that has almost surely increased in recent years. These are not spare bedrooms in someone’s home—they are entire houses and apartments that are being used for tourists to rent—in many cases, only for a few days a week,” the report said.
The country needs more long-term housing for Canadians to live in and that is why the federal government intends to deny income tax deductions for expenses incurred to earn short-term rental income, including interest expenses, in provinces and municipalities that have prohibited short-term rentals. This would be applied on or after Jan. 1, 2024.
The fall economic statement proposes $50 million over three years, starting in 2024-25, to support municipal enforcement of restrictions on short-term rentals.
