Tag: Buying

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Cottage Life

Mortgage stress test remains unchanged (for now) despite high interest rates

Photo by Puttachat Kumkrong/Shutterstock

High interest rates over the last 12 months have reduced purchasing power and made borrowing more expensive for Canadians. But the outlook isn’t all doom and gloom for cottage owners and cottage buyers to-be.

Last year, the Bank of Canada raised its key interest rate seven times to 4.25 per cent, its highest level since 2008, in effort to cool consumer spending and lower inflation. Canada’s five major banks moved to increase their prime lending rates 50 basis points, which increases borrowing costs for anyone with a variable rate loan.

In December, the Office of the Superintendent of Financial Institutions (OSFI) announced it would keep the minimum qualifying rate—a mechanism to test whether borrowers will still be able to afford their mortgage if interest rates rise—for uninsured mortgages unchanged at 5.25 per cent.

“In an environment characterized by sustained high inflation, rising mortgage interest rates, and potential risks to borrower income, it is prudent that lenders continue to test borrowers for adverse conditions,” said Tolga Yalkin, the OSFI assistant superintendent for Policy, Innovation, and Stakeholder Affairs, at a media briefing last month.

While the federal banking regulator’s stress test still hovers around 5 per cent, cottage buyers must show they can pay interest payments at 7 per cent—which reduces the size of a mortgage buyers can qualify for, says Ottawa-based mortgage broker Andrew Thake.

Experts say that the high interest rates have worked as intended to slow the demand for big ticket items such as housing and vehicles. Home sales in Canada declined by 3.3 per cent from October to November in 2022, according to CREA.

However, high interest rates have made paying off home and cottage mortgages a strain for those who have them and made it even more difficult for those who want to secure one.

For those looking to buy

Buyers looking for cottages who don’t qualify for a mortgage that is large enough to purchase the type of property they’re interested in may be able to qualify in a year and a half when the stress test rates go down. Those applying for a mortgage today will qualify for less than they would have, had they applied a few years ago.

“You’d either have to put more down, or you just have to settle for a smaller place,” says Thake.

Thake suggested that people looking to buy while interest rates are high could also look at a fixed-rate mortgage for a shorter period of time—think two or three years—and if rates settle down after that, they could look at renewing.

Sometimes, when rates go up, cottage buyers can find savings elsewhere. “Even though interest rates are a bit higher, the price of the cottage is probably substantially lower than what you paid a year or two ago in some markets.”

This month, the OSFI is reviewing Guideline B-20, which includes the minimum qualifying rate (MQR) and other mortgage lending measures. The office launched a public consultation on January 12, which will take place until April 14, 2023.

Among the measures the OSFI is considering are restrictions on how much banks can lend to people whose mortgage exceeds a certain percentage of their gross income. This is something banks already do, but the changes may include tightening up the restrictions, says Thake.

Other changes may also include new debt servicing coverage restrictions, which would limit how much borrowers’ mortgage payments comprise a percentage of their income. Currently, most banks limit a borrowers’ housing obligations to 39 per cent of their gross income, but some major banks push that to 49 per cent.

Additionally, the OSFI is considering implementing a new minimum interest rate that is applied in debt servicing calculations.

“They want to reduce risk in the industry. The OSFI is worried about exposure to heightened risk from a lot of debt, plus a potential recession and high interest rates,” Thake said. “They want to reduce the probability of borrower default.”

Buy, sell, rent, dream

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Cottage Life

5 (potentially) confusing cottage real estate terms

By Doucefleur/Shutterstock

“In my business, familiarizing buyers with what they need to know involves some new terminology,” says Chris Winney, a broker with Royal LePage ProAlliance Realty in Northbrook, Ont. Here are a few potentially confusing terms for cottage buyers.

Road access Wait, how is that confusing? There’s “road access” and “water access.” Simple! But this term can require some explanation “if part of the way into the cottage takes you from a township-maintained road to resident-maintained lanes that may criss-cross neighbouring properties,” says Winney. “That’s when using a local lawyer is beneficial; they know the area well and understand how the buyer may or may not be impacted by this situation.”

Cottage Q&A: If neighbours access their dock via our property, are we liable if they get hurt on our land?

Road maintenance fees “It’s important for buyers to understand that when they purchase a cottage that uses resident-maintained lanes for access, they need to accept that there will be an extra annual shared fee,” says Winney. Everyone who uses the road helps pay for the road: for maintenance—grading and dust control if it’s gravel, for example—insurance, and potentially snow plowing. (Even if you don’t use the cottage in the winter, your cottage association or road association may expect you to pay for winter maintenance.)

Cottage Q&A: How can we ensure everyone pays their share of road maintenance fees?

Crown land Any land, lakes, and rivers managed by the government. Is there any Crown land near the lake? “Having it facing or around your property is beneficial,” says Winney. “It’s a constant view, it probably means the lake is clean, and it provides everyone with privacy.” Not to mention trees. Everyone loves trees!

A guide to buying and building on Crown land in Ontario

Public access points This could affect how much boat traffic the lake gets. “Are there public access points on your lake or is it a closed system? On larger lakes, both residents and visitors can often put their boats in at different boat launches,” says Winney. On smaller lakes, you may need to own property to be able to boat there.

Lake level Well, duh: it’s the level of the lake! But you’ll want to investigate what controls it, and therefore, what can affect it throughout the year. “Is it spring-fed? Is it part of a river chain controlled by dams? Does the water level fluctuate to allow you to keep your dock in place in the winter?” says Winney. “Knowing this happens will reassure a buyer when the water drops at the end of October by five to six feet. Yikes if they didn’t know!”

15 real estate terms for first-time buyers

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Cottage Life

Cottage Q&A: The definition of “cottage country”

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What is considered “cottage country” around Ottawa?—Valerie Quinn, Barrie, Ont.

Well, according to Wikipedia, it’s “the Rideau Lakes area or parts of the Outaouais,” which is correct. At least, it’s been correct for a long time. If you’re asking because you’re, say, moving to Ottawa and you plan to buy a seasonal place, cottage country for you will probably depend on how much you want to spend, how badly you want privacy, and how far you’re willing to drive to get it.

“For most people, ‘cottage country’ is within a two-hour drive of Ottawa,” says Martin Elder, the owner of Martin Elder Real Estate Group. “They want lakes, not rivers. They want nature and lots of trees and no close neighbours.” But—if you’ve been reading this magazine over the last several years—you know that “cottage country” almost everywhere is evolving. “Everything is getting built up,” says Elder. Plus, supply is low and demand is high. A cottage that ticks all the boxes—the coveted two-hour drive time, lots of privacy, and the right price—is getting harder to find. 

“I say to people, ‘I’d love to sell you that, but it doesn’t exist—not at the prices we saw two years ago,’ ” says John Macintyre, a veteran Century 21 realtor based in Chelsea, Que. 

More people are moving full-time to the cottage or retiring to the cottage. “Many lakes that 25 years ago were considered cottage-only are now largely residential,” says Macintyre. (If a lake has no cottages on it, is it still “cottage country”?)

Bottom line: if availability and prices and lack of privacy push buyers to drive outside the traditional two-hour upper travel limit, and more cottagers move full-time to the traditional cottage lakes…who knows what we’ll call Ottawa “cottage country” in the future?

Don’t worry. We’ll update the Wikipedia page when the time comes.

Got a question for Cottage Q&A? Send it to answers@cottagelife.com.

This article was originally published in the June/July 2022 issue of Cottage Life magazine.

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Cottage Life

Buying a vacant lot or a teardown? The pros and cons

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Whether you’ve been priced out of the market for turnkey cottages or just frustrated that you haven’t been able to find your dream cottage, you might be considering starting from scratch with a teardown or buying a vacant lot. There are pros and cons to both options.

Location, location, location

“The best waterfront lots have already been sold and developed,” says Chris Winney, a real estate broker in the Land ‘O Lakes area, who sold more than a dozen vacant lots in 2021. If you’re buying a vacant lot, you might have to forgo those west-facing sunset views, the gently sloping and weed-free shoreline, and easy access to town and other amenities.

There are some prime lots that occasionally come up but the further afield you’re willing to travel the easier it will be to find an unspoiled plot of land that ticks off all your boxes.

When you do find a suitable lot, your biggest expense may not be the price of the land. If the site isn’t already serviced, you’ll need power, a water source, a sewage system, and road access.

Depending how far the lot is from existing hydro lines, the cost to run power to your new property can run into the tens of thousands of dollars. In 2021, one couple made the news when they were quoted $60,000 to run a line from the nearest existing pole, 440 metres away from the Minden-area dream home they’d constructed on a vacant lot.

One alternative would be to go off-grid with renewable energy, but you’ll need to invest in battery storage and perhaps even a backup generator in case the system is drained. Both will add substantial costs to your budget.

You’ll also have to install a septic system, drill a well or install a water purification system for water drawn from the lake, and if there isn’t already a road leading directly to the property you’ll have to enquire with the municipality to see if you’re allowed to have one built.

You should also know that financing a vacant lot can be difficult. Most traditional lenders will not give a mortgage for vacant land. If you have equity in your home, you might be able to fund the purchase with a line of credit. If not, you’ll have to turn to private lenders for a loan at significantly higher interest rates than a standard mortgage.

Budgeting for a teardown

The main advantage to buying a teardown is that the hydro, water, sewage system, and road access are likely already in place. But there are still potential costs to consider.

For one, in the purchase price you’ll be paying for a building you have no intention of using. Plus, you’ll have to pay for the demolition of the original structure and disposing of the debris. If toxic materials such as asbestos or lead paint are found inside, this will increase the removal costs. If the property is water access, you’ll need to factor in renting a barge to haul in equipment and haul out the trash.

Before you put in an offer, contact the local municipality to find out if there any restrictions that would impact your planned structure. And don’t assume you can simply rebuild on the existing footprint. Some municipalities require new buildings to meet current zoning setbacks.

You may also have to replace the existing septic system, particularly if your new structure expands on the original square footage and number of bathroom fixtures.

Patience is a virtue

Whichever route you choose, Winney points out that with current building conditions you’ll have to be patient. Most reputable builders are booking contracts a year or two out and ongoing supply chain issues mean that almost everything you’ll need to build a cottage will take longer than usual to order.

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Cottage Life

Cottage Q&A: Spring 2022 cottage real estate prices

By Sean Locke Photography/Shutterstock

What will 2022 look like in terms of Ontario cottage prices? —Todd R. Mcrae, Toronto

We assume that you’ve already consulted the Psychic Hotline, with dismal results. “Let me first shine off my crystal ball,” says Shawn Woof, the senior vice-president of sales and a sales representative with Sotheby’s International Realty Canada in Port Carling, Ont. What does he see? The trend that began once the pandemic ramped up is set to continue: a high demand coupled with a low inventory means that “it’s likely going to be a seller’s market,” says Woof. 

“With the arrival of COVID-19, cottage country hit the radar of people looking to get out of Dodge,” says Chris Winney, a realtor with Royal LePage Realty in Northbrook, Ont. “Suddenly, a property listed on the high side of normal was likely to be involved in a bidding war and might sell for 250K over asking.”

What with the multiple waves of COVID that followed (was it four waves? 17 waves?), even now, “people are still less likely to sell,” says Woof. “Every case is different, but it appears that those who are holding on to the cottage far outweigh those who are cashing out.” 

If you’re asking because you want to sell your place soon, high five! You can expect to get more than the listing price (within reason). But if you’re a prospective cottager hoping to buy this year, “you’ll have to be open to broadening the scope of what you’re looking for,” says Woof. You’re not going to find any deals, and you’ll need to treat the listing price as the starting price.

Still, you can’t win if you don’t try. Start the search early in the spring, says Winney. “Have your financing arranged before you begin, use a local realtor, and bring along a structural expert when you go to a showing.”

Cottage prices aren’t likely to drop any time soon. But they’re also not likely to skyrocket to infinity. Winney predicts that demand will become more moderate eventually. “So the ‘new normal’ will still be high prices, but they will plateau.”

This article originally ran in the March/April 2022 issue of Cottage Life magazine.

Got a question for Cottage Q&A? Send it to answers@cottagelife.com.

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Cottage Life

What you should look for in a cottage if you plan to rent out

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Ever since the COVID-19 pandemic sent city dwellers rushing towards cottage country, cottage prices have been soaring. It’s why many buyers decide to rent out their cottage to balance the cost of the investment. 

“Many more buyers are interested in renting out their cottage,” says Catharine Inniss, a realtor who’s been selling real estate in Muskoka for 16 years. “Some clients think they’ll use it themselves a little bit while they rent it out for a few years, and then eventually, they’ll use it solely as their own cottage or they’ll move up here.” Here are five things to look for in a cottage if you plan to rent it out. 

1. Local rental rules

Different areas may have different rules regarding short-term accommodations. 

“The rules can change from township to township,” Inniss points out. “People really need to use a local realtor who knows what the rules are. It would be a shock if you were counting on that money and then you weren’t allowed to rent out your place.” Even if short-term rentals are allowed, you may need to spend money on a short-term rentals licence. Research the rules before you buy. 

2. Location 

If you’re going to be depending on that rental income, you’ll need to determine just how much you can charge for rent. Some of the biggest factors are the area and nearby amenities. 

“Are there activities around that people are going to want to participate in?” Inniss asks. “If you’re coming up for a week or two, you might want to go to a local fair or somewhere for lunch.” She adds that prospective buyers should do a bit of research to see how popular the area is for renters or how much comparable cottages in the area are being rented for. 

3. Accessibility

A water-access cottage might be more affordable, but will also be less desirable for some renters? The same is true for a cabin that’s deep in the woods, less accessible in the winter, or simply too far from more populated areas. Before pulling the trigger on a cottage, consider whether renters will want to tackle the challenge of getting there. 

4. Cell phone reception and internet access

To some renters, Netflix may be just as important to their holiday as the sunset. But reliable internet service in cottage country can be costly, if it’s even available at all. 

“It’s a huge factor,” says Inniss, about cottages having phone and internet access. “Yes, some people want to disconnect, but others might need to work a day or two but want to come up with their family.” Reliable internet will also be important when guests need to communicate with you during their stay. 

5. Appealing to the broadest group

If you’re planning to rent out your cottage, your personal tastes may not be the first priority, Inniss says. Appealing to more potential renters means seeking out things like ample sleeping capacity, a winterized cottage for year-round use, parking for multiple cars and privacy from neighbouring properties.

“Even something being kid-friendly,” Inniss says. “Is it on a cliff, or are there a lot of stairs down to the water? That’s something you’d want to think about before renting.”

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Cottage Life

Buy the Way: An inland cottage was the move for these ski enthusiasts

Photo by Philip Preville

The backstory: Philip Preville’s fondest childhood memories are of skiing on the slopes of Quebec and Alberta, where he grew up. “Getting up early on a cold winter morning and grabbing my skis is part of who I am,” says the 53-year-old freelance writer and Cottage Life contributor. Philip introduced his beloved sport to his wife, Lynn, a 46-year-old surgeon, and their three sons: 15-year-old, Luke and 12-year-old twins, Noel and Ivor. Skiing became the family’s favourite winter pastime, with the boys all joining racing programs from an early age. After the family moved from Toronto to Peterborough, Ont., in 2011, they became season’s pass holders at Devil’s Elbow, a local ski resort. But when Devil’s Elbow closed in 2018, the family needed a new place to ski. Friends invited them to the Muskoka Ski Club, operating out of Hidden Valley Highlands, near Huntsville, Ont., which is about two hours north of Peterborough. The family rented an Airbnb in 2018 and fell in love with Hidden Valley’s picturesque peaks and tight-knit community. And while ski club family memberships can cost upwards of $70,000 in Ontario, the Muskoka Ski Club’s membership was about $11,000. Instead of continuing to rent Airbnbs, Philip and Lynn decided to buy a Huntsville cottage to use as a permanent homebase during ski season. “Unlike most people seeking a summer getaway, we were looking for something with winter specifically in mind,” says Philip.

The search: In the fall of 2019, the family began looking to buy a three-bedroom cottage. “A waterfront property was also on our checklist, but it wasn’t a must-have,” says Philip. “The priority was finding something as close as possible to Hidden Valley.” They hoped to spend less than $500,000 on their new cottage, but quickly realized they were priced out from any waterfront properties, which were listed at $750,000 and above. The family shifted their search to more affordable inland cottages. That October, they toured a three-bed, two-bath cottage that was a 10-minute drive from Hidden Valley. Part of a recently built subdivision on the outskirts of Huntsville, the one-storey home sat on a 15,000-sq. ft. wooded lot that backed onto Deerhurst Highlands Golf Course. Though the interior has a good amount of living space, “At 1,500 sq. ft, there isn’t a lot of room for guests,” says Philip. The cottage was listed for slightly higher than their $500,000 ceiling, but the couple still made an offer. The sellers accepted, and the family took possession in November, just in time for the 2019-2020 ski season.

The silver lining: That winter, the family spent most weekends and Christmas at their new inland cottage. Despite sporadic COVID-related closures at their ski hill in the two years since, the family continues to savour their weekly winter escape. When they’re not skiing, they enjoy hiking the nearby woods and cozying up together for movie nights. They also mountain bike in the summer. “Skiing transforms your entire experience of winter,” says Philip. “You can socialize and have fun, no matter how cold it is outside. That’s why it’s worth making the long drive every weekend, without a doubt.”

Philip’s reasons to consider an inland cottage

1. Water activities aren’t your main priority
If your passion happens to be skiing, cycling, hiking, or even bird-watching, Philip cautions that a waterfront cottage may go unused and become a superfluous perk. “Why pay for premium waterfront when you might never be on the water?” he says.

2. You get more of a plug-and-play cottage experience
Philip’s inland cottage is hooked up to municipal water and hydro on a road that also has services such as garbage pickup and snow plowing. Those conveniences eliminate much of the work that comes with roughing it in more isolated waterfront cottages.

3. There are always other ways to access the water
This past summer, Philip made a habit of biking three kilometres from his Huntsville cottage to a public beach on nearby Peninsula Lake for a morning swim. “We don’t have our own private waterfront,” he says, “but there’s plenty of rivers, marinas, and beaches close by.”

Did you recently buy a cottage in a non-traditional way? We’d love to hear about it! Email alysha@cottagelife.com.

Categories
Cottage Life

Buy the Way: An inland cottage was the move for these ski enthusiasts

Photo by Philip Preville

The backstory: Philip Preville’s fondest childhood memories are of skiing on the slopes of Quebec and Alberta, where he grew up. “Getting up early on a cold winter morning and grabbing my skis is part of who I am,” says the 53-year-old freelance writer and Cottage Life contributor. Philip introduced his beloved sport to his wife, Lynn, a 46-year-old surgeon, and their three sons: 15-year-old, Luke and 12-year-old twins, Noel and Ivor. Skiing became the family’s favourite winter pastime, with the boys all joining racing programs from an early age. After the family moved from Toronto to Peterborough, Ont., in 2011, they became season’s pass holders at Devil’s Elbow, a local ski resort. But when Devil’s Elbow closed in 2018, the family needed a new place to ski. Friends invited them to the Muskoka Ski Club, operating out of Hidden Valley Highlands, near Huntsville, Ont., which is about two hours north of Peterborough. The family rented an Airbnb in 2018 and fell in love with Hidden Valley’s picturesque peaks and tight-knit community. And while ski club family memberships can cost upwards of $70,000 in Ontario, the Muskoka Ski Club’s membership was about $11,000. Instead of continuing to rent Airbnbs, Philip and Lynn decided to buy a Huntsville cottage to use as a permanent homebase during ski season. “Unlike most people seeking a summer getaway, we were looking for something with winter specifically in mind,” says Philip.

The search: In the fall of 2019, the family began looking to buy a three-bedroom cottage. “A waterfront property was also on our checklist, but it wasn’t a must-have,” says Philip. “The priority was finding something as close as possible to Hidden Valley.” They hoped to spend less than $500,000 on their new cottage, but quickly realized they were priced out from any waterfront properties, which were listed at $750,000 and above. The family shifted their search to more affordable inland cottages. That October, they toured a three-bed, two-bath cottage that was a 10-minute drive from Hidden Valley. Part of a recently built subdivision on the outskirts of Huntsville, the one-storey home sat on a 15,000-sq. ft. wooded lot that backed onto Deerhurst Highlands Golf Course. Though the interior has a good amount of living space, “At 1,500 sq. ft, there isn’t a lot of room for guests,” says Philip. The cottage was listed for slightly higher than their $500,000 ceiling, but the couple still made an offer. The sellers accepted, and the family took possession in November, just in time for the 2019-2020 ski season.

The silver lining: That winter, the family spent most weekends and Christmas at their new inland cottage. Despite sporadic COVID-related closures at their ski hill in the two years since, the family continues to savour their weekly winter escape. When they’re not skiing, they enjoy hiking the nearby woods and cozying up together for movie nights. They also mountain bike in the summer. “Skiing transforms your entire experience of winter,” says Philip. “You can socialize and have fun, no matter how cold it is outside. That’s why it’s worth making the long drive every weekend, without a doubt.”

Philip’s reasons to consider an inland cottage

1. Water activities aren’t your main priority
If your passion happens to be skiing, cycling, hiking, or even bird-watching, Philip cautions that a waterfront cottage may go unused and become a superfluous perk. “Why pay for premium waterfront when you might never be on the water?” he says.

2. You get more of a plug-and-play cottage experience
Philip’s inland cottage is hooked up to municipal water and hydro on a road that also has services such as garbage pickup and snow plowing. Those conveniences eliminate much of the work that comes with roughing it in more isolated waterfront cottages.

3. There are always other ways to access the water
This past summer, Philip made a habit of biking three kilometres from his Huntsville cottage to a public beach on nearby Peninsula Lake for a morning swim. “We don’t have our own private waterfront,” he says, “but there’s plenty of rivers, marinas, and beaches close by.”

Did you recently buy a cottage in a non-traditional way? We’d love to hear about it! Email alysha@cottagelife.com.