B.C. housing taxes could put recent buyers underwater on mortgages
VICTORIA — British Columbians who bought homes last year in an attempt to borrow before a federal tightening of mortgage rules could be most at risk if the NDP government’s new housing taxes leads to a drop in prices.
Finance Minister Carole James reiterated Thursday her desire to “moderate” B.C.’s housing market with a new speculation tax unveiled this week, as well as an expanded foreign buyer tax, and a tax hike on home sales and school taxes for properties worth more than $3 million.
James has said her intent is to try to lower the price of housing. If successful, it could mean some recent buyers would find themselves holding mortgages for which they owe more money than they could recoup by selling their properties.
“The most worrisome is the people who bought in the last year,” said a University of B.C. professor and economist, Tom Davidoff. “If you bought three years ago, it doesn’t matter because prices have gone so high it’s very unlikely you’d go ‘underwater’. But if you bought in the last year you are at risk. And that year is the most worrisome.”
Underwater is a term meaning the mortgage owing on the home is higher than its market value.
Some of those buyers rushed to secure mortgages for more money than they’d otherwise be allowed to borrow under stiffer interest rate stress test rules that Ottawa introduced on Jan. 1. Those owners are particularly vulnerable to both interest rate increases and a decline in housing prices, said Davidoff.