The federal government is boosting the minimum down
payment for higher-priced homes in Canada effective in the new year.
Homebuyers are currently required to put down a minimum
of five per cent to qualify for Canada Mortgage and Housing Corporation
insurance — protection that lenders insist on when providing a mortgage
worth more than 80 per cent of the home's value.
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Starting in February, CMHC will require a 10 per
cent down payment on the portion of any mortgage it insures over $500,000.
The five per cent rule remains the same for the portion up
to $500,000.
"We recognize that, specifically in
the Toronto and Vancouver markets, we have seen house prices that
have been elevated," Finance Minister
Bill Morneau told reporters on Friday, "and we want to make
sure we create an environment that protects the people buying homes so they
have sufficient equity in their home."
Once the new rules are implemented in 2016, someone
looking to buy a $750,000 home would need to have a minimum down payment of
$50,000, which is what you get when you add five per cent of $500,000
and 10 per cent of the remaining $250,000.
Banks are forbidden to provide "high-ratio"
mortgages — when the amount being borrowed is more than 80 per cent of
the home's purchase price — without taking out insurance for it.
Toronto, Vancouver
home prices spiral
The government-backed CMHC is by far the largest
provider of mortgage insurance in Canada, and although it is the lender that is
protected and pays the premiums, virtually all banks will pass these premiums
on to borrowers.
Homes priced at more than $1 million by law require a
minimum down payment of 20 per cent, and therefore the CMHC guarantee
doesn't apply.
Several consecutive years of record-low interest rates have
enticed new buyers into the housing market.
According to the Canadian Real Estate Association, average
home prices in Toronto are now more than $630,000 — a 7.5 per cent increase
over last year. In Vancouver, the average is now close to $1 million —
rising by more than 15 per cent in the last year alone.
Morneau denied his
government is concerned about a housing bubble.
"We are not fearing anything in particular," he
said. "What we are doing is trying make sure we look at areas of the
market that present potential risks."
'Minimal impact'
BMO Capital Markets, for one, believes the measure will have
a "minimal impact" on house sales and prices.
"Rather than a blunt instrument to cool the market,
this is a targeted measure designed to deter a very small segment of buyers
from stretching into the market with a very low equity position," said
Robert Kavcic, senior economist with BMO.
"The bigger-picture fundamentals driving home price
gains in Toronto and Vancouver — restricted detached-home supply, demographic
demand, low mortgage rates and inflows of foreign wealth — remain firmly in
place," he added.
Even some of the government's own critics are welcoming the
hike in down payment rules. NDP finance critic
Guy Caron calls it "prudent."
"It will decrease the vulnerability of
the CMHC and it will actually increase the equity of buyers in houses
because obviously they will think twice about buying a house that might not be
affordable to them," he said.
However, Canadian Mortgage Professionals, a group that
lobbies on behalf of the industry, believes the move will reduce house sales —
which is why it opposes the change.
"Until a year ago, the oil sector and housing market
were the leading contributors to job creation in Canada," the group said
in a statement. "With one of these two leaders now increasingly hobbled,
this is not the time to deliberately hobble the remaining economic
leader."
Source: http://www.cbc.ca/news/politics/morneau-home-ownership-finance-1.3360610
