It seems as though Canada’s real estate regulators have taken aim at foreign buyers as the easiest way to slow down the housing market.
First there was Vancouver’s successful foreign buyer tax which sparked concerns that Toronto might get one of its own soon. Now two Canadian banks have made changes to their mortgage requirements for foreign buyers that may reduce the amount of foreign buyers they approve.
As Advisor.ca reports, Bank of Nova Scotia (Scotiabank) and Bank of Montreal (BMO) have both tightened up requirements for proof of income for non-residents.
Scotiabank’s income verification policy previously had a loophole in which buyers with large down payments could circumvent the verification. Now that will no longer be the case as all buyers will need to provide verification for their income. BMO will also require non-residents to verify their wealth and income sources.
The move comes after stories surfaced of Canadian homes being bought by foreign speculators looking to make quick money with little to no background checking or credit assessment. If their incomes had been properly verified, banks would be able to tell whether someone could really afford the house or are just going to hold onto it for a short amount of time to flip it at a higher price. This made it an unfair playing field when it came to qualifying for a mortgage and drove prices higher for citizens who just want a place to live.
The tighter mortgage requirements have been applauded by Canada’s financial leaders, including the Minister of Finance Bill Morneau.