The Brave Among Us
Bravery. Determination. It takes an awful lot of those two qualities to start something new. It takes guts, plain and simple, to pick up and start over in a new country, no family or community to hold you up when the going gets tough. With new and overwhelmingly unfamiliar systems to navigate, perhaps even a new language, new Canadians muscle through. This is the experience for immigrants as they set up a home. And they do this while they maneuver through immigration, education, and health care systems, and find employment in a new country.
While the stakes are different, starting a company in a busy market takes a healthy dose of bravery and determination too. Without the scaffolding of a regular paycheque, health benefits, and measure of job protection, it can seem impossible to get ahead with your new service, or product. But entrepreneurs and start-ups drive us all forward. Because they forecast needs in the market and create change all consumers can benefit from.
It’s disappointing then, that an already tough road – which can have a huge payoff of course – is often made even bumpier by strict rules that govern homeownership here in Canada.
It’s difficult for new Canadians and entrepreneurs, especially start-ups, to purchase real estate without a hefty down payment and steep insurance premiums. Their mortgage applications are too often denied. Current rules are discriminatory; and this has prompted the national housing agency, the Canadian Mortgage Housing Corp (CMHC), to announce that they are taking steps to create more equity for those who want to own property in Canada.
Currently, if you want to purchase a home in Canada without a down payment of at least 20 percent of the purchase price, you’re required to get mortgage loan insurance from the CMHC. The CMHC requires a smaller down payment of 5 percent on a home worth up to $500,000. A 10 percent down payment is required for the portion above $500,000. One million dollars is the maximum property value allowed. The mortgage insurance comes with a premium, which the lender will then pass on to the person buying the home. With prices continuing to soar, it’s clear that homeownership can be out of reach of many of the hardest working in our community.
“Right now, under our mortgage insurance policies, you have to be able to document income to get mortgage insurance, to a level of specificity that discriminates against new Canadians, because they can’t do that,” Evan Siddall, the CEO of the Canada Mortgage and Housing Corp., said in a wide-ranging interview with The Canadian Press.
“It discriminates against entrepreneurs, as well, because they can’t prove their income as well, so we’re looking at our own policies to try and make sure that there is more equity in our mortgage insurance programs,” he said.
CMHC: How to Qualify Now
As it stands, entrepreneurs and New Canadians must provide proof of income to qualify for a Canadian mortgage. Usually, a letter of employment from the employer, along with a few pay stubs is sufficient. But if you’re a new Canadian you may have gaps in your employment history. If you’re an entrepreneur you have to provide 4 years of tax assessments. From there, the average income is taken for your mortgage application. For many entrepreneurs, this in itself won’t accurately reflect how well their business is faring.
For entrepreneurs too, they must be engaged in the same type of work for a minimum of two years. Dan Kelly, president of the Canadian Federation of Independent Business, said more flexibility would be welcome, especially for startups. “If one starts a business or is self-employed, the lines between their personal and business finances are often quite blurry,” said Kelly.
“Often, their personal assets are required to get financing for the business. But then they also have a challenge getting financing on the personal side because they don’t have the nice, clean letter of offer from an employer that is often quite convincing in these situations,” he said.
No Data from CMHC yet, No Real Plan…
So far data has not been made available on how many mortgage applications from new Canadians and entrepreneurs are denied each year. This would be interesting data to examine, as the CMHC explores ways to increase access to homeownership in Canada. The CMHC cites ongoing conversations with commercial lenders as their reason for being unable to disclose these numbers.
For now, the CMHC has only announced that they will review policies to increase equity and flexibility. They hope to announce some new rules in the next six months. But acknowledging the problem is certainly a stride in the right direction. Canada is a diverse country. It’s time that the playing field be leveled for new Canadians and entrepreneurs. These groups drive Canada’s growth in the most interesting and dynamic ways.
The Reaction to CMHC?
But what’s the catch? Because of course there is one (or many). Any flexibility to their rules exposes the CMHC to increased risk. The CMHC is a conservative body by design. Any adjustments to rules will benefit a pretty small proportion of would-be homebuyers who currently see their mortgage applications denied. This is also flexibility the homebuyer pays for in the way of higher interest rates on their mortgage. And with soaring house prices across Canada, it’s easy to see how these potential changes will have little impact. But as Siddal notes, it’s better to have something available for purchase than not available at all.
What are your thoughts? Is this too little too late? Given the limits of CMHC insurance and the cost of a single-family home in Toronto? Or welcome news? Tell us what you think in the comments.
With files from the Canadian Press