With real estate prices soaring high for hot markets like Toronto and Vancouver, mortgage insurers and the government are attempting to cool down hot markets with a change in mortgage rules starting today.
Starting mid-February, portion of mortgages above $500,000 will require a 10% down payment, a move that’s been calculated to slow down the home buying spree as home buyers will have to put down more cash before they can call a house their home. It is believed that this change will put-off homeowners from taking on mortgages they can’t really afford; because the banks will then have to tighten lending rules with possibly more people needing a loan to come up with the extra funds for down payment.
Politics and Real Estate
Back in December, the federal government had announced that the Canada Mortgage and Housing Corporation, along with other mortgage insurers, will be requiring double the 5% homeowners previously used to pay to have their mortgages insured. This move is aimed to create a protected environment for buyers as shared by Finance Minister Bill Morneau – a government attempt to stabilize the real estate market in ‘hotter’ cities.
Coming from the perspective of those who are tracking Canadian housing trends, Real Estate Investment Network senior analyst Don Campbell says that this change will most likely have an impact on first-time homebuyers in hotter markets; making the demand for starter homes in Vancouver and Toronto theoretically decrease as people try to save themselves from getting locked into mortgages they may not be able to afford.
Quite a number of recent surveys point to the sobering thought that some people are stretching their financial resources dangerously thin, as they take on alarming debt loads with high interest rates to be able to finance the ownership of their dream home. It remains to be seen if this latest government-led measure will indeed shield the economy given the high household debt loads a lot of Canadians are carrying around.
New Era for Mortgage Brokers?
Licensed mortgage brokers seem to think that the introduction of the new mortgage rule is indeed good politics, but is lacking in terms of policy since how this affects the whole Canadian market is not likely to be felt that much. Why? The homeowners purchasing homes costing above $500,000 are not that many. Statistics show that only about 10,000 of the 120,000 to 125,000 homes above $500,000 will be affected by the new rule and those are mostly saturated in Vancouver and Toronto.
Realtors and analysts alike are on the camp that any effect of this new mortgage rule will be short lived and will eventually fade off as it becomes ‘normal’ for people buying in the $500,000 to $900,000 range. If any, people in affected hot markets will just get more creative in securing loans, such as by contacting Vancouver and Toronto mortgage brokers that can get them access to loans with great payment terms and will enable them to afford their dream home.