OTTAWA - The federal government, concerned about sky-high real estate prices in Vancouver and Toronto, announced Friday it will make new buyers come up with a heftier down payment starting in mid-February.
The move was part of a three-pronged effort aimed at lowering the risk that taxpayers will have to bail out lenders in the event the bubble bursts in the housing markets in those two cities.
Effective February 15, 2016, the minimum down payment for new Canada Mortgage and Housing Corp.-insured mortgages will jump from five to 10 per cent – though that extra five per cent will apply only to home purchase prices exceeding $500,000.
In other words, the current minimum payment on a $500,000 house would be $25,000. If the house costs $600,000 a 10 per cent charge is levied only on the extra $100,000, bringing the minimum payment to $35,000.
The new rule will not apply to Canadians who already hold mortgages.
The measures also won’t impact houses sold for $1 million or more, since they already required a minimum 20 per cent down payment.
Morneau, in a statement to reporters, made clear his concern was Vancouver and Toronto.
He noted that the average price of homes sold across Canada in October was $453,000, well under the threshold.
The “benchmark” price for a detached home in Greater Vancouver last month, however, was just over $1.2 million, according to the Real Estate Board of Greater Vancouver.
“Targeting higher-price properties will minimize the impact on many first-time home buyers and (on) regional housing markets where activity is more moderate, while limiting risk and taxpayer exposure to the elevated housing markets in Vancouver and in Toronto,” he said in a sttement.
“Moreover this measure will increase home owner equity, which plays a key role in maintaining a stable and secure housing market and economy for the long term. This protects all homeowners, including many middle-class Canadians whose greatest investment is in their home.”
Morneau was asked by The Vancouver Sun why the federal government is targeting first-time buyers in cities like Vancouver, while doing nothing to deal with the impact of speculators and foreign buyers driving up prices.
“You know, we are taking measured approaches to make sure we protect Canadians,” he replied.
“We are looking at how we can ensure the Canadians who already have homes recognize there is a stable housing market, and those people that are aspiring to have homes can be assured that their biggest financial investment is in a stable and effective market.”
Morneau got quick support Friday from economist Jock Finlayson, executive vice-president and chief policy officer at the B.C. Business Council.
“I think this move makes sense,” Finlayson told The Sun.
“With an almost stalled Canadian economy, policy-makers need to be looking at tools other than interest rates as a means to address concerns about overheated housing markets in some major metropolitan areas.
“This change should not affect first-time home buyers in most Canadian cities, but will affect some in the Greater Toronto and Metro Vancouver markets.
“It is a prudent measure, in my view, but it is unlikely to have a significant impact on the high end of the housing market where buyers typically have the ability to make substantial down payments.”
Morneau’s move today was part of a three-pronged effort to protect Canada from the potential impact of an expanding housing market price bubble that bursts.
- CMHC is increasing guarantee fees charged to lenders to cover the cost of CMHC-sponsored securitization programs, National Housing Act mortgage-backed securities, and Canada Mortgage Bonds.
- The office of the Superintendent of Financial Institutions said it will consult on and “update” regulated capital requirements for residential mortgages held by federally-regulated lenders, like banks, trust companies and credit unions, and for private mortgage insurers.