The new Liberal government is raising the minimum down payment for federally insured mortgages to 10 per cent from five per cent for the portion of house prices above $500,000. This means that if a buyer were to purchase a home for $550,000, the minimum down payment would be five per cent of the first $500,000, and then 10 per cent of the remaining $50,000.
The change comes into effect on February 15th, 2016, and has no impact on mortgages taken out before then. The minimum down payments for insured mortgages on homes below $500,000 and above $1 million will stay put at five per cent and 20 per cent, respectively.
“The actions taken today prudently address emerging vulnerabilities in certain housing markets, while not overburdening other areas,” said Finance Minister Bill Morneau, in a statement.
In its release, the Grits pointed out that the average price of a home sold via the Canadian Real Estate Association’s multiple listing service was $453,000 — low enough that it remains in the range that won’t be affected by the rule change.
All mortgages offered through federally regulated lenders must be insured if the debtor’s down payment accounts for less than 20 per cent of a home’s purchase price.
Homebuyers with these insured mortgages tend to buy properties costing less than the national average, the Liberals note.
“In 2014, the average property price for new insured purchases with down payments of less than 20 per cent was about $293,000, compared to an average price of about $416,000 for properties sold through the MLS system,” a party release states.
Robert Hogue, a senior economist at RBC Economics, said the Liberals’ mortgage plan is a “good step” and will have “a targeted impact.”
“The government clearly wants to target the Toronto area and the Vancouver area, where prices are highest in Canada,” he tells BuzzBuzzHome News. “So it is, I think, a reasonable approach to attempting to cool those markets down.”
To gauge the effectiveness of the move in the coming months, however, Hogue says more data needs to become available.
As it stands now, there aren’t “great statistics” detailing how leveraged buyers are in a given home price point, he explains.
“I’m sure there is some number of buyers of properties above $500,000 that require mortgage insurance that have put down the minimum 5 per cent, but we just don’t know exactly what that number is.”
Whatever they number, Hogue says these buyers will likely have to put off buying a home while they save for a higher down payment, marginally pushing sales in that price range down.