Breaking News!!
It’s official… Canada’s Finance Minister announced changes to the minimum down payment requirements effective Feb 15, 2016. That’s right…we can expect a busier than usual Jan/Feb market.
The required down payment on homes worth at least $500,000 will rise to 10 per cent from 5 per cent starting Feb. 15, 2016 — however the higher threshold will only apply to the portion in excess of that mark. That means the minimum down payment for a home worth up to $1 million would be 7.5 per cent.
The move is aimed at cooling overheated housing markets in Toronto and Vancouver but that could risk exaggerating a home price correction in the Prairies.
Ottawa had previously restricted its mortgage insurance to homes valued at less than $1-million, so the minimum down payment for more expensive homes remains unchanged at 20 per cent.
“The Ministry of Finance is touching the untouchable,” said Canadian Imperial Bank of Commerce economist Benjamin Tal.
While the move represents the most significant tightening of mortgage rules since Ottawa implemented the minimum 5 per cent down payment in 2008, the effect may be smaller than expected, writes Mr. Tal.
Just 17 per cent of home sales across Canada over the past year were for between $500,000 and $1-million, although that figure rose to 33 per cent in Vancouver and 40 per cent in Toronto.
Roughly 23 per cent of outstanding mortgages in Canada are considered “high-ratio,” with owners requiring government-backed mortgage insurance, meaning the rules will affect less than 4 per cent of new mortgages, writes Mr. Tal.
Average resale home prices rose an annualized 9.4 per cent in November, the Toronto Real Estate Board reported, while the Greater Vancouver Real Estate Board said benchmark prices for homes in the Metro Vancouver area rose nearly 18 per cent since last November.
The share of properties valued at between $500,000 and $1-million is actually smaller in Toronto and Vancouver than given that sizzling markets have pushed many properties, particularly detached homes, over the $1-million mark.
Sizzling markets have pushed the prices of many homes, particularly detached houses, above the $1-million mark in Toronto and Vancouver, pushing out many of the first-time buyers who would most likely be affected by the new rules. A survey earlier this year by private sector mortgage insurer Genworth MI Financial found the average down payment among first-time buyers in Toronto and Vancouver was 20 per cent.
The new rules will likely affect just 5 per cent of new sales in Toronto, and just 2.5 per cent in Vancouver, writes Mr. Tal. But will affect nearly 10 per cent of sales in Calgary, where homeowners tended to have relatively small down payments.
“The overall impact will be felt only at the margin, given the relatively small segment of the market that will be impacted – even in the target markets.”
Have your clients give us a shout ASAP, 403.242.5547, so we can get them pre-approved to avoid any delays due to the inevitable lender backlog.
Full Globe and Mail Article here
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