The real estate market is changing the rules of the game
What is the 30% rule and why it no longer applies in Canada.
The cost of renting and buying a home in Canada continues to rise, and financial analysts advise against looking back at previous benchmarks. For example, they advise doing away with the 30% rule. It's been around since the 1980s. Rent or mortgage payments were not supposed to exceed 30 percent of a person's or family's income. In this case, bank employees and landlords could be sure that the borrower was solvent, and he himself could count on not denying himself the usual benefits. This rule is still used in America and Australia, and the figure of 30% is considered a good benchmark to assess their financial capabilities. But at present prices and wages, Canadians can no longer rely on it.
For example, a single person in Vancouver needs to earn CAD 9,000 a month or CAD 108,000 a year tax-free to rent an apartment at the current price. There are many wealthy people in this city, but that salary is higher than the Canadian average, which is CAD 5,000 per month or CAD 60,000 per year. Many Canadians have to spend 50% or more of their income on rent or mortgages. Married couples have it a little easier because they live on two salaries and split the cost in half, but housing is more expensive for a family with children.
Canadian economists and realtors advise you to carefully analyze your situation before you rent or buy a home, rather than using templates. Every family has different circumstances. There are cases where it makes sense to take out a mortgage, even if it will take up to 70% of your earnings. And in some circumstances, the family will not be able to allocate even 25% of their income for monthly payments.
Instead, experts suggest examining your budget and expenses in full, and putting together a financial safety cushion. Consider your commitments, priorities, and major expenditures. You can't look at just one abstract figure. Determine for yourself how much you can spend on your mortgage without denying yourself important things. If you don't know how to do this, ask financial advisors for help. Some organizations provide quite budget-friendly services.
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