Feb. 15, 2016 looms large on the mortgage landscape – that’s when the new down payment requirement kicks in for properties between $500,000 and $1 million.
Federal Finance Minister Bill Morneau in December announced changes to the rules for government-backed mortgage insurance, intended to contain risks in the housing market, reduce taxpayer exposure and support long-term stability.
Effective Feb. 15, the minimum down payment for new insured mortgages will increase from five to 10 per cent for the portion of the house price above $500,000. The five-per-cent minimum down payment for properties up to $500,000 remains unchanged.
What does this mean for first-time homebuyers?
Buying a house for less than $500,000?
- The new down payment requirement will not affect you
Buying for between $500,000 and $1 million? You have four choices:
- Buy before Feb. 15 to avoid the new requirement, to still be able to put down five per cent
- Delay your purchase until you’ve saved the additional funds for the new, higher down payment
- Somehow come up with the additional funds now, say, with help of the Bank of Mom and Dad, or
- Buy a home that is priced at less than $500,000. Depending on the market you’re in, that could mean you’d then be looking at condo, instead of a lowrise home
For example, if you’re buying a property for $800,000, you would need to make a down payment of five per cent on the first $500,000 ($25,000) and 10 per cent on the remaining $300,000 ($30,000). This would be equal to a total down payment of $55,000, or 6.9 per cent of the total purchase price, or an increase of $15,000.
Buying for more than $1 million?
- The changes will not affect you. You’ll need a down payment of 20 per cent, before or after the change in regulations on Feb. 15
Regional markets to be impacted
While the new down payment requirement was intended primarily to slow the housing markets in Toronto and Vancouver – where average home prices are $630,876 and $947,334, respectively – the impact could be felt most elsewhere. CIBC Deputy Chief Economist Benjamin Tal says Calgary will be hit hardest, due to the large share of high-ratio mortgages. In this city, the new measures are estimated to impact about 10 per cent of new sales, while in Toronto the figure is five per cent; in Vancouver, just 2.5 per cent.
Spike in homebuying activity
Toronto-based Mortgage broker and wealth planner Calum Ross expects the new rules to cause a spike in activity before the deadline.
“Unexpected changes to the market that make access to capital more difficult historically have had a significant short-term impact, followed by an adjustment,” he told YPNextHome.
Expect market activity to go up substantially on homes priced between $500,000 and $1 million through until the deadline.