Toronto and Vancouver Mortgage Rules to Change Starting mid-February

Planning to purchase a new home? Moving to Toronto or Vancouver soon? You might be in for a surprise starting February 15,2016! Vancouver and Toronto’s housing markets are at a frenzy and the Liberal government turned to tweaking lending rules in an effort to cool them down.

The Big News

In an announcement a few weeks ago, it was revealed that new residential mortgages with portions in excess of $500,000 will be subject to a 10% down payment instead of the current 5% –  a change that will take effect a month from now. The first $500,000 will still be subject to a 5% down payment and existing mortgages will remain as is, with homes costing more than a million still having to follow the required 20% down payment, as shared by Finance Minister Bill Morneau.

Benjamin Tal, CIBC’s deputy chief economist says that Calgary could get hit hard by this change – because it has a relatively large share of high-ratio mortgages compared to other places.

A Matter of Safety?

Different policy changes had been placed in effect in recent years to limit Canadians’ vulnerability to financial risk in the event of a correction in the housing market. Since 2008, there has been four occasions when mortgage rules had been tightened to cool off blistering real estate markets. The cooling effect is indeed effective, albeit it should be noted that the effects are only temporary.

Morneau told reporters in an interview that the increase in down payment is believed to help with stabilising the entire market as well as make people more secure by creating a buffer. It is estimated that about 1% of the total market will be affected by this change; a number that is equivalent to an estimated number of less than 10,000 home purchasers.

Morneau further shares that the move is aimed to cool down and keep the housing market stable; more so for Toronto and Vancouver, both of which are sporting fiery hot real estate markets. 4% of Toronto’s home sales and 6% of Vancouver’s home sales are above $500,000; a big difference compared to the national average of only 1%.

The Minister also shared that the change is planned in such a way to not have a negative impact on certain markets, like Alberta’s where the situation is more challenging.

The announcement has been widely expected in light of growing concerns that homeowners could end up being in a very tight situation if prices suddenly collapse in an overheated market.

Comes with a Price

What does this mean for the aspiring home owner? A lot, apparently.

Those who may be planning to purchase a pricier home in Vancouver and Toronto might be ‘forced’ to put off doing so because they would have to save up more money for the down payment, not to mention having to meet some mortgage requirements like having a minimum annual income of $120,000 with no debts to qualify if someone wants to purchase a half million-dollar home. A family or individual with a monthly income of $7,000 after taxes and spends $5,000 to $6,000 on monthly expenses will need a few years to save up for the new down payment – something that’s not to be taken lightly.

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