It’s a trend we’re seeing more of as prices in the city continue to outpace those in the market for home ownership – many a city girl and boy are trading in their metro card and favourite sushi joint for an actual car garage and garden filled with basil. Buoyed by the trend toward more sustainable living and a return to raising families the “old fashioned way,” the popularity of rural properties is definitely on the rise.
There’s no doubt that the further one travels from Metro Vancouver, the cheaper housing becomes – one only has to look at the latest real estate board statistics to see that. But what about those rural mortgages – are they more affordable and easier to obtain?
In fact, the reality is that obtaining a mortgage on an actual rural property can be tricky. While the property itself may be more affordable, banks typically view rural properties, often on large acreages, as higher risk and are less likely to approve a mortgage on them. Loans Canada has also reported that rural homes can be more difficult to resell in rural areas, which puts the bank at risk if the borrower defaults on the loan – and banks hate risk.
Alternative Lending Sources
While tougher lending rules are continuing to put many people in rural areas in a tight spot for a mortgage, private lenders are gaining traction as an alternate – although this comes with its own set of drawbacks. The most obvious is that with private mortgages it is the property, not the individual, that is subject to the most amount of scrutiny. While this may sound advantageous to some, it is precisely the reason why rural properties don’t usually qualify for as much capital – usually 65 per cent loan-to-value (LTV) ratio, as opposed to 85 per cent in highly urban areas.
Chuck McKitrick, CEO of Alta West Mortgage, which is a private lending company in Alberta, was quoted by Which Mortgage as saying their primary criteria is “the condition the property is in, where it’s located and how easy it is to sell if the borrower gets into trouble.” In this case, the borrower’s financials and personal details come in second to the property itself.
What is the Property’s Purpose?
For those looking to ditch city life, it is important to ask yourself whether your rural property will be simply a home, or agricultural, such as a farm, ranch or nursery. If you’re of the latter group, it is worthwhile to look into an agricultural mortgage. SmartFarmBC is a great source of information for those interested in organizing a business strategy for a farming startup – an essential for anyone looking at the possibility of approaching a lender for a rural mortgage. In such cases, seeking out a fixed agricultural mortgage is a good idea as monthly income can vary widely, particularly for those new to farm business management.
Another variable to draw attention to is that most lenders will base their ultimate decision on the first 10 acres and the main house. As an example, let’s say a property is 15 acres and the main building is a working shed; loan financing will be substantially lower to reflect this. Private lenders aside, most looking to move outside the city will be forced to work with national lenders (the Big Banks) or local credit unions – and they don’t want anyone looking to build a hobby farm either. In the case of a foreclosure, if the owner’s source of income is attached to the property, it becomes that much more difficult for the lender to resell, causing most to opt out of the situation entirely.
Making it Work
The good news on rural properties as of late is that there are more than ample examples of those who have made it work. A recent article in the Vancouver Sun reported that “real estate refugees” from Metro Vancouver are flooding the Gulf Islands in BC. Rather than working the land, however, these are young professionals with primarily digital or “portable” businesses who have left the hot plate of the Vancouver housing market behind for more affordable housing and a better quality of life.
While a rural property may not be feasible for everyone, looking outside the city centre to the suburbs, there are still deals to be found and financing remains easier. While upscale suburbs like North Vancouver and West Vancouver remain incredibly pricey, alternatives such as New Westminster and Port Moody are excellent alternatives and gentrifying more and more each year. Just last year, the Globe reported that for less than $500,000 new homeowners can purchase a townhome; significantly less for condos and micro units as well.
If it’s a unique, rural property you’re after, it stands to reason that you will probably have to work harder to make your dream come to fruition. Spending some quality time in the area you’re looking into buying is a worthwhile game plan; that will give you an opportunity to see if it is a good fit before beginning the mortgage process, garden spade or not.