Rates are on the way down and new mortgage rules are coming into play – suggesting the market could see changing fortunes next year
A spate of interest rate jumps and a housing affordability crisis have weighed down prospects in Canada’s mortgage market since 2022 – but a flurry of positive news in the second half of this year has strengthened optimism in a brighter outlook for the coming 12 months.
The Bank of Canada reversed course on its rate-hiking path in June and has kept going throughout the year, with Wednesday’s cut marking a fifth rate reduction in a row and a second consecutive oversized drop.
That means rates have now tumbled by 175 points over a seven-month period – and while the 50-point cuts seen in October and December aren’t expected to become the norm in 2025, the central bank is set to continue slashing rates at a milder pace next year.
What’s more, new mortgage rule changes slated to come into effect at the end of this week, which will introduce 30-year amortizations and a higher mortgage insurability cap, could improve the purchasing outlook for some buyers.
Taken together, those developments suggest a brisk pace of homebuying activity may be in the cards when spring comes around, according to Toronto broker Matthew O’Neil (pictured top) of Connolly Capital.
He told Canadian Mortgage Professional that he had already been expecting a busy spring – “but this [new] cut that happened will push some timelines up,” he said. “Pretty much every rate now has a four in front of it, whereas if the Bank only cut by 25 basis points, variable rates would still be in the fives.
“So I think this should just accelerate people’s decisions to get ready for the spring. We’re already starting to preapprove people now and over the next three weeks to buy in March and April.”
The Bank of Canada has lowered its overnight interest rate by 50 basis points, making a second consecutive oversized cut in response to a spike in unemployment and growing signs of a weakening economy. https://t.co/NBlnujREIG
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 11, 2024
Insured mortgage cap hike to benefit some Toronto homebuyers
O’Neil said his team, which is based in South Mississauga and Port Credit, will see “huge benefit” from the decision to increase the insured mortgage cap to $1.5 million, with many clients now able to set their sights on buying a house having been restricted to condo purchases before.
“There’s a lot of people who we would historically deal with and they have good income but just not 20% down saved. So they’d be kind of pushed to the condo market, especially in Toronto. Now, those people can go to Leslieville, Etobicoke, Mimico, maybe East York, some areas of Oakville, and get a house now.”
The adjustment – which boosts the maximum amount eligible for a downpayment of less than 20% from the previous cap – could prove a game changer for borrower types previously restricted to a purchase below $1 million, with few houses available in that price range.
Even couples with good household incomes in Toronto would often have been stuck with a choice of either seeing whether they could push themselves over the top through downpayment assistance from family, O’Neil said, or deciding to leave Toronto because they didn’t want to live in a condo.
“But now those people can say, ‘All right – I can go to Leslieville and I can find a semi-detached house there for $1.3 million and I have the 10% down saved, so I’m good,’” he said.
Longer amortizations set to offer greater choice for new buyers
The decision to introduce 30-year amortizations for first-time homebuyers and those purchasing a newly-built property, meanwhile, is another move that O’Neil said will make a significant difference for those buyers with higher hopes than a condo purchase.
The change will reduce the amount they need to pay on a monthly mortgage – and allow them to save money that might otherwise have been swallowed up by condo payments.
“A 30-year amortization on a [$1.3 million] mortgage might drop your payment $400, $500, $600 a month,” he said. “It’s pretty significant, and then they’re also getting out of a two-bed, two-bath condo, which would historically be $650 to $700 in condo fees. So it’s pretty significant now that they can take those savings per month and buy something freehold.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
