Ottawa moves to raise minimum down payment requirement

This story has been updated

Calgary, Edmonton and other markets already experiencing a cooling are expected to be among the cities hardest hit by the federal government’s new minimum down payment requirement.

Finance Minister Bill Morneau on Dec. 11 announced changes to the rules for government-backed mortgage insurance, intended to contain risks in the housing market, reduce taxpayer exposure and support long-term stability.

Effective Feb. 15, 2016, the minimum down payment for new insured mortgages will increase from five per cent to 10 per cent for the portion of the house price above $500,000. The five-per-cent minimum down payment for properties up to $500,000 remains unchanged.

The move represents a graduated approach to increasing the down payment requirement proportionally to the cost of a home. Canadians who already hold mortgages will not be affected by this announcement.

“The government’s role in housing is to set and maintain a framework that is equitable, stable and sustainable,” Morneau says. “The actions taken today prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions. They also rebalance government support for the housing sector to promote long-term stability and balanced economic growth.

“This measure will increase homeowner equity, which plays a key role in maintaining a stable and secure housing market and economy over the long term,” he adds. “It also protects all homeowners, including many middle class Canadians whose greatest investment is in their homes.”

In making the announcement, Morneau also highlighted the increases in guarantee fees for Canada Mortgage and Housing Corp. (CMHC)-sponsored securitization programs, announced by CMHC.

So, what might all this mean for consumers?

For those in Calgary, Edmonton and even Victoria, BC, the move could have the unintended consequences of imparting additional cooling on already chilly markets.

CIBC Deputy Chief Economist Benjamin Tal says the largest impact will be felt in Calgary, due to the large share of high-ratio mortgages. In this city, the new measures are estimated to impact about 10 per cent of new sales, while in Toronto the figure is five per cent; in Vancouver, just 2.5 per cent.

Overall, the ramifications of the move should be fairly minimal. “It will only affect a small number of buyers,” James Laird, president of mortgage broker CanWise Financial, told YPNextHome. “People in the affected group may need to rent a little bit longer until they save the extra down payment required. They may still buy where they’re planning to by getting help from family. Or they may still buy right away, but buy a slightly smaller home than they were planning to.”

The changes primarily target high-end homebuyers – “two young professionals earning pretty good incomes,” Laird adds. “They are purchasing in this $500,000 to $1 million bracket.

“The other thing to think about is that it really shouldn’t affect non-first-time homebuyers. Presumably, they’d be selling their previous home to buy another home, and there’d be enough equity in their home.”

Toronto-based Mortgage broker and wealth planner Calum Ross expects the new rules to cause a spike in activity before the deadline.

“Unexpected changes to the market that make access to capital more difficult historically have had a significant short-term impact, followed by an adjustment,” he told YPNextHome.

“Expect market activity to go up substantially on homes priced between $500,000 and $1 million through until the deadline. Personally, the only surprise part of this announcement is why they didn’t do this sooner. The fact people were able to do five per cent down beyond $500,000 was ridiculous to begin with. Homeownership is a privilege, not a right.”

Photo: Department of Finance Canada


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