A 'for sale' sign outside a home in Toronto. Changes planned to Canada's mortgage rules will take effect Dec. 15, and represent the first significant relaxation of the country’s mortgage rules after more than a decade of increasingly tougher requirements.Carlos Osorio/Reuters
Canadians will be able to get mortgage insurance for pricier homes and first-time buyers will be able to stretch out their payments longer under changes to federal policy that aim to help younger buyers get into the housing market.
The changes, which take effect Dec. 15, represent the first significant relaxation of the country’s mortgage rules after more than a decade of increasingly tougher requirements, including shorter amortization periods and the mortgage stress test.
Under the new rules, the price cap for insured mortgages will be $1.5-million, up from $1-million. First-time homebuyers will be allowed to take out an insured mortgage with a 30-year amortization for all types of homes. And more buyers will be allowed to take out an insured mortgage with a 30-year amortization on a preconstruction home.
The new policies are seen as an attempt by the Trudeau government to win over young voters who have been priced out of home ownership by high prices and higher interest rates. They build on Ottawa’s decision earlier this year to allow first-time buyers to take out a 30-year amortization on preconstruction homes and were announced after more than a year of slow real estate sales.
“We need to help millennials. We need to help Gen Z,” Finance Minister Chrystia Freeland told reporters after she announced the changes. “Canada needs to be a place where the dream of home ownership is alive.”
By the numbers: How the new mortgage rules could change the math for homebuyers
The affordability crisis has been seized upon by Conservative Leader Pierre Poilievre and his party to attack the government over its handling of the housing file ahead of an expected election in the coming year. Their attacks have focused on a lack of affordability and housing supply across the country, a message that has resonated with some younger voters who have been losing hope of owning a home.
Across the country, the typical price of a home is more than $700,000. In Vancouver and the Lower Mainland in B.C. and in Toronto and many parts of Southern Ontario, the typical price of a home is more than $1-million.
Currently, mortgage insurance is not available if a home costs more than $1-million. And mortgage insurance, which protects lenders if a homeowner misses a mortgage payment, is required if the buyer makes a down payment that is less than 20 per cent of the purchase price.
That means prospective buyers have to have at least $200,000 for a down payment. Raising the mortgage-insurance threshold to $1.5-million means more buyers will be able to enter the more expensive markets with a smaller down payment.
“This will create competition for sure,” said Tuli Parubets, a mortgage agent with Mortgage Scout who works with homebuyers in the Toronto region.
Phil Soper, president of Royal LePage, said the higher insured value means buyers will have an easier time buying in more than a dozen cities where the median price of a detached home is between $1-million and $1.5-million. Those cities include Langley and Victoria in B.C., and Brampton, Burlington and Milton in Ontario.
The federal government has been under pressure to make housing more affordable for younger Canadians. Allowing first-time homebuyers to get a 30-year amortization on resale homes will reduce their monthly mortgage payments.
The real estate industry applauded the changes announced Monday and agreed with Ottawa’s reasoning that it would make home ownership more attainable and more affordable. National Bank of Canada estimates that the monthly mortgage payments on an average-priced home would be 8.9 per cent lower on a 30-year amortization versus 25 years.
But it also means that homebuyers will carry their mortgages for a longer period of time.
“Longer amortizations don’t improve affordability,” said Robert Kavcic, senior economist with Bank of Montreal, adding that it pushes Canadians into higher debt burdens for longer.
The new policies will be implemented ahead of the traditionally busy spring selling market next year and could act as a stimulus to the country’s housing market. Although the Bank of Canada cut interest rates three times so far this year, the lower borrowing costs have done little to entice buyers back into the market because mortgages are still relatively pricey.
Mr. Kavcic said the longer amortizations could have the effect of pushing up home prices. Ms. Parubets also agreed the increased competition could boost prices.
However, some economists, realtors and mortgage brokers said they did not think Ottawa’s latest actions would trigger another real estate boom.
“We’re a long way from a frenzy,” said BMO chief economist Douglas Porter. “But I do think the series of rate cuts we are now in the midst of, combined with today’s moves, are setting the stage for a firmer market next year.”
The federal government also announced that the 30-year amortizations would be available to all buyers of preconstruction homes and not just first-time homebuyers. That could provide an incremental boost for the new condo market, where sales have dropped to multiyear lows.
Preconstruction condos used to be a popular investment for mom-and-pop investors and high-net-worth individuals, but they have fallen out of favour as the prices of new condos have soared.
One preconstruction expert likened it to a “nothing announcement.” That is because buyers already qualify for a 30-year amortization if they make a down payment that is at least 20 per cent of the property’s purchase price, and most developers require buyers to put down a 20-per-cent deposit.
“The large majority were already getting 30-year amortizations,” said Shaun Hildebrand, president of Urbanation, a preconstruction-condo research firm.
Edenshaw Developments, which is currently developing 4,000 condo units in the Toronto region, said the announcement could bring in buyers. “It will provide confidence to the market to venture back into investing in real estate once more,” said David McComb, the company’s founder and chief executive.
Editor’s note: An earlier version of this article incorrectly stated that all homebuyers, including investors, will be eligible to take out an insured mortgage with a 30-year amortization to buy a preconstruction home. Investment purchases of income properties are not eligible. This version has been updated.
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