If you’ve had any involvement in the housing market over the past couple of years, especially in Toronto or Vancouver, it won’t come as a surprise that the Canadian government is effecting some regulatory changes.
But it’s not quite as simple as raising the minimum down payment required for a house — so let’s start by clarifying the new rules.
Effective this February, the down payment minimum is being raised to 10% from 5% for mortgages over $500,000. This applies only to the portion of the mortgage over that amount. The 5% minimum still applies to all mortgages under half a million dollars, and the 20% minimum still applies to all homes over $1 million.
For example, for the purchase of a $700,000 home, you would need a down payment of $45,000. This represents 5% of $500,000 ($25,000) plus 10% of the remaining $200,000 (20,000). For the purchase of a $500,000 home, you would still need only $25,000 (5%).
The thinking is basically this: home prices are elevated, low interest rates are pulling new buyers into the market, and there is concern that an abundance of highly leveraged mortgages poses a danger to home owners and to the Canadian economy. Bigger down payments might make people think twice about buying a house that they really can’t afford.
But will this change really help cool the market? As always, there are all kinds of conflicting perspectives.
Some say that it affects too narrow a segment of buyers to have much impact, and fails to address all the other factors currently driving up home prices — like home supply, demographic demand and low mortgage rates.
Others object even to the initiative to reduce house sales, considering the housing market is among the leading economic sectors and job creators in Canada. With the oil sector already struggling, an unnecessary hit to the housing market could have other repercussions.
Still, many others are of the position that the new down payment regulations will help make the CMHC less vulnerable, while increasing the equity of home buyers. Only time will tell.