While the changes have been largely welcomed, concerns remain about the impact on housing affordability — and whether they will truly benefit those who need it most.
The new rules, which come into effect on December 15, will see the cap on insured mortgages raised from $1 million to $1.5 million, along with an expanded 30-year amortization option for first-time buyers and those purchasing new builds.
Industry insiders have mostly celebrated the government’s willingness to adapt its policies in response to economic and market pressures. However, despite the general approval of some elements of the new rules, there is lingering uncertainty about the broader, long-term implications. Concerns over affordability and supply shortages have fuelled ongoing debate.
“It is a band aid solution,” asserted rate expert Ryan Sims in his weekly newsletter. “The problem remains that housing is too [expletive] expensive! Increasing the amortization does not lower the cost of housing. Extending the payments out longer does nothing to fix the root cause of the issue—it simply masks the symptoms.”
Canadian Mortgage App founder and CEO Ben Salami, meanwhile, expressed concern that the numbers didn’t quite add up, at least not in a way that helps first-time buyers struggling to enter the market.
“Under the new December 15 rules, a purchase price of $1,499,999 with a minimum down payment of $124,999.90 incurs a staggering insurance premium of $57,750,” he posted in a group for industry professionals. “Not to mention, the income required to qualify for this mortgage is approximately $327,000!”
“That was my first impression. I was a bit shocked,” Salami later told Canadian Mortgage Trends. After reflecting on the changes, he acknowledged support for the extended amortization periods for first-time and new-build buyers but emphasized that he would have preferred adjustments to the government’s stress test requirements instead.
“The required income is what kills it,” he says. “It’s not so much the minimum down payment; we have a bigger problem with the qualification piece.”
Other members of Canada’s mortgage industry believe the changes could benefit more than just first-time buyers in the short term, suggesting they may also drive long-term development of much-needed “missing middle” housing.
“It’s a signal—one of many—being sent to developers to inspire them to build something other than studio, one-bed, and two-bed condos, and those odd feeling two-bedroom townhouses,” argued Dustan Woodhouse on his Be The Better Broker blog.
The $1.5 million question: why raise the cap so high?
Woodhouse added that while few buyers will take advantage of the higher end of the new cap — since those who can afford a $1.5 million home under current stress test requirements aren’t the primary focus of the policy—many middle-income Canadians stand to benefit.
“The real magic of these changes will be in the $1.05M, the $1.08M, the $1.12M price ranges,” he argues. “That’s the zone where a key group of buyers will now be able to actually buy something.”
Tyler Cowle, the principal broker at Mortgage Foundations, says he was surprised by the Government of Canada’s decision to go as high as $1.5 million for the insured mortgage cap.
“The industry was asking for $1.25 million, we were told ‘no’ constantly, and then all of a sudden it’s $1.5 million,” he says. “It’s such a high income level that’s needed to qualify, so it just brings in high income with low leverage, and that introduces future risk.”
Who stands to benefit most from the new rules?
Cowle added that, in his view, the changes favour existing homeowners more than those trying to enter the market, pointing out that the former group tends to vote in federal elections more frequently.
He explained that raising the insured mortgage cap broadens the buyer pool for current homeowners, while the 30-year amortization extension benefits both new and existing buyers.
“It allows first-time homebuyers—who are actually buying homes that are affordable and are realistic—to get into the market,” he says. “At the same time, for the existing homeowner, that buyer who could only afford $500,000 can now spend $550,000, so the demand is going to send home prices even higher, so that one serves to benefit both.”
Canada’s private mortgage insurers weigh in
As brokers continue to weigh the long-term implications of the policy changes, the country’s major mortgage insurance providers have applauded the federal government’s flexibility and responsiveness.
“These measures will noticeably improve the ability of many Canadians, including many first-time homebuyers in particular, to afford to purchase and own their own home,” says Sagen president and CEO Stuart Levings. “At this time, the premium rates will remain the same as determined by product and loan-to-value, with a premium surcharge for 30-year amortization of 20 bps.”
Levings also added a note of caution: “Overall, these are positive, long overdue changes. That said, I would definitely agree with the concern that house prices could see strong inflationary pressures in the absence of enough suitable supply. Supply as you probably know is a big challenge to solve. It will take an ongoing focus by all levels of government to accelerate this side of the equation.”
Canada Guaranty, Canada’s other private mortgage insurer, also expressed support for the changes.
“Canada Guaranty is very pleased to see the increase in the insured cap from $1 million to 1.5 million,” said Mary Putnam, the company’s senior vice president of sales and marketing. “The $1 million cap was implemented in 2012 and has not been adjusted despite market movement, so the lift on the cap is welcome.”
Putnam adds that the change will most affect buyers in the $1 million to $1.25 million range, and notes that the cap increase only applies to high-ratio purchases (over 80% LTV), while the $1 million cap remains in effect otherwise.
“The down payment required is 5% on the portion of the purchase price up to $500,000 and 10% on the portion of the purchase price between $500,000 and under $1.5 million,” she adds. “The premium paid is based on the LTV.”
While some in the industry initially criticized the changes as politically motivated, a band-aid solution, or a financial workaround for a supply issue, Putnam views the increase to the million-dollar cap as a step in the right direction.
“There’s no question that we have a supply issue, and I think there are many strategies the government is working on to address the supply side,” she says.
“This was the first time in a while that we’ve seen anything that supports first-time homebuyers,” she added. “This recent change will support future homeowners and their ability to purchase, particularly in major urban centres like Toronto and Vancouver.”
Visited 20 times, 20 visit(s) today
Last modified: October 6, 2024