How the HST Affects Buying a Home
There has been a lot of confusion about how the newly implemented HST affects the purchase of a new, or used home. Many realtors and brokers are pointing their finger at the HST factor for the recent drop in the real estate market. They say that many people simply do not understand what the HST means to them and they are under the impression that this new tax means a substantial increase in the cost of buying a house.
First of all, it’s probably important to understand what the HST is all about. The Harmonized Sales Tax, or HST, was put into affect on July 1, 2010 in the Canadian provinces of Ontario and British Columbia only. This new tax combines both the federal goods and services tax (of five per cent) with the provincial sales tax, which is seven per cent in British Columbia and eight per cent in Ontario. The HST combines these two single taxes into one. As well, it is being applied to certain goods and services, while remaining exempt from others. This, perhaps, is where most of the confusion lies.
Most items that were tax exempt before, like prescription drugs and groceries, will remain tax-free. Items that were taxed with both the GST and the PST prior to the HST will remain taxed the same. However, the controversy lies in the ‘other’ goods and services that were once only taxed the GST, such as everyday products like haircuts and gasoline. Now, as of July 1, they are HST taxed, meaning they are essentially being taxed both the GST as well as the PST. This has caused a significant rise in everyday essentials. So services such as lawyers for instance, were only subject to GST before July 1 but are now subject to both, meaning the full HST is applied to lawyer’s fees.
When it comes to buying and selling a home, the mortgage fees and banking fees will remain as before, meaning they are still tax-exempt. One difference, however, will be in the real estate commissions, as they are now subject to the full HST instead of only the GST as pre-July 1. Also, new homes in both provinces will be taxed the HST, but are eligible for tax rebates depending on the cost of the new home. In Ontario for instance, a home under $400,000 is eligible for a rebate of 75 per cent of the provincial part of the tax, up to a maximum of $24,000.
In British Columbia, homes under $525,000 are subject to a 71.43 per cent tax rebate of the provincial portion of the HST while homes over $525,000 can apply for the maximum rebate of $26,250. Something else to factor in is the cost of new appliances, movers, painters and construction workers who are all now on the hook to charge both GST and PST, meaning you, as a consumer, will be fitting the entire HST bill.
Buying a new home may have gotten a little more complicated, or perhaps it has just gotten a lot more expensive for the average person. Being in the market for a new home can be exciting but it something best done with a lot of financial planning.
British Columbia Home Sales Fall in June
The average home in British Columbia will set you back around $449,908 as of June of this year, which is up 8.2 per cent from June 2009, however it is slightly lower than the average of $504,281 during the first six months of this year.
Throughout British Columbia, realtors have sold a combined 7,722 homes via MLS (Multiple Listing Service). This number shows sales are down about 22.5 per cent from June of 2009. Realtor Ron Antalek notes, “There’s not the necessity of multiple offers and competing bids. People are able to shop. They have time to compare.” On the other side of the real estate market they have seen an increase by almost 21 percent in listings with June offering 59,232 properties to choose from. Based on previous recorded rates of sales, that gives British Columbia a 9-month supply of listings, according to Cameron Nuir, the association’s chief economist noted. He also felt that the tougher rules for qualifying have had an impact on home sales as first-time buyers will have more difficulty getting approved for mortgages.
Muir said, “I don’t know if there’s anything surprising about it, but we’ve seen a transition, in Vancouver in particular, from a seller’s market at the start of the year to a buyer’s market in the summer.”
Where you are buying in British Columbia will also have an effect on your purchasing experience as certain cities are showing bigger drops in sales than others. The popular and sough-after city of Victoria showed the biggest decline with sales dipping a surprising 36 percent in June 2010, compared to June 2009. Kelowna and Vernon also saw a decline in sales by 27 per cent while Metro Vancouver’s sales decreased by a whopping 30 percent.
The current trend is believed to be only temporary as Muir feels certain things will pick up again in the Fall. With the new mortgage rules only recently being put into effect, it seems some of the sting can be felt already as less people are qualifying to buy. Whether it’s a lack of the upfront deposits, not meeting the annual income requirements or perhaps it’s an increase in poor credit scores due to the recent economic turmoil, qualifying can be a challenge to say the least. More and more people are being turned away from traditional lenders due to bad credit not only in B.C., but all across the country. First time home buyers are highly recommended to get their credit rating in order before applying for a mortgage.
The Cheapest Canadian Cities for Real Estate
If you’re in the market for a home, this may be of interest to you. Canada’s housing market had managed to maintain its strength right across the country during the economic turmoil of this past year. Although our southern neighbours have suffered a housing crisis, and even though many analysts say a housing bubble is around the corner for Canadians, bidding wars on high cost homes have continued in major cities like Vancouver and Toronto.
There are many great deals to be found from one end of the country to the other. A comparison of average home prices and the median of household incomes has produced a list of where your dollars are best spent if you’re in the market for a home. First up on the list, New Brunswick. Higher than average incomes combined with low housing prices have made this province number one for the best place to look. St. John, Moncton and Fredericton have some great options to offer in the way of home buying. The average cost of a home in St. John and Fredericton comes in at around $169,000. According to the Canadian Real Estate Association, the average provincial cost is around $155,000.
Another great place to look for a home is Nova Scotia and Cape Breton. Sydney, the largest city on Cape Breton island, offers some of the least expensive housing prices in the entire country. An average home here costs a mere $98,338. This could prove to be a great deal for those seeking an Oceanside cottage.
Gatineau, Quebec offers beautiful homes for around $100,000 below Ottawa’s prices. This suburban area offers a small-town feel, as it’s located on the edge of the Ottawa River. It’s close proximity to the city makes commuting easy, which is very attractive to potential buyers. However, if you’re seeking a more isolated and small town feel to your next home, Charlottetown, PEI may be an option. Boasting $188,000 for an average home and a quaint population of just 32,000, Charlottetown has much to offer in the way of wildlife, golf courses and sandy beaches. It just may be a great option for a summer vacation home.
Heading into the prairies, Regina, Saskatchewan is a healthy economic city with booming natural gas and oil industries. Showing off its many vibrant recreations spaces and green parks, a home can be had here for about $250,826. Of course, there are many things to consider when purchasing a home but if you’re in the market, taking a look at some of these options may be a good idea.
So You Think a Foreclosure Doesn’t Impact Your Credit Score?
There are many misconceptions about how credit scores work and what happens to yours if you miss a bill payment, foreclose on your mortgage or short sale on your home. Some borrowers may think that because they never missed a payment, they can just walk away from their homes with relatively little or sometime even no impact on their personal credit scores. This is simply not so. Coming from experts, when a deed-in-lieu or short sale is reported as a partial payment, it’s treated as a serious delinquency, just like a foreclosure.
Here are a few ways a mortgage borrower can lose their home: a foreclosure; a short sale, where the home is sold for less than is left owing on the home and the banks generally forgive the difference, or a deed-in-lieu, in which the borrower gives back the property and the bank again forgives any unpaid balance. Regardless of which method you have used to eliminate your mortgage, generally credit bureaus will reflect the same penalty towards your credit score. The bottom line to the bank is that they report you paid less than the agreed amount on that settled account.
So even if, as a borrower, you made payments faithfully for years before short selling or doing a deed-in-lieu, your credit score will still have an enormous negative impact on it. Mortgage debt, combined with other financial problems, can send borrowers into bankruptcy, which is the worst thing that can happen to your credit score. So, since it’s now common knowledge that any kind of delinquent behaviour towards your mortgage will cause your credit score to suffer, the question remains, how much?
Until recently, credit bureaus were reluctant to let consumers know how much of an impact these late and non-payments would have on their scores. Being as there are so many variables, it was, for the most part, very difficult to even begin to answer that question with any sort of accuracy. Now, however, it is possible to get an idea on how many points you will lose by the amount of days your payment is late, as well as by the means you use to get out of your mortgage early.
Fair Isaac, who developed FICO scores, released these numbers as an average go-by. If you are: 30 days late: 40 – 110 points; 90 days late: 70 – 135 points; a foreclosure, short sale or deed-in-lieu: 85 – 160 and a bankruptcy: 130 – 240.
If you are in danger of a mortgage foreclosure, or missing payments, speak to your lender before it’s too late. Every situation is different, so find out the best option for your circumstances.