The federal government introduced big changes this week
The federal government’s two big changes to mortgage rules this week grabbed headlines – but just how seismic will those adjustments prove in helping Canadians buy a home?
Finance minister Chrystia Freeland’s announcement of a hike in the insured mortgage cap to $1.5 million and an expansion of 30-year amortization eligibility sparked a wave of reaction in the mortgage industry, ranging from optimism to scorn.
Speaking with Canadian Mortgage Professional, high-profile Toronto broker Elan Weintraub (pictured top), co-founder of Mortgage Outlet, described the measures as a “nice little step” in improving buyer prospects, but suggested they may not move the needle significantly for many buyers.
The decision to increase the insured mortgage cap means buyers purchasing a home up to a limit of $1.5 million can now use a downpayment of under 20% and avail of mortgage insurance.
That’s positive for some buyers, but fails to address a significant problem for most: namely, the eyewatering personal income required to secure a mortgage at those prices.
Weintraub offered the example of a 10% downpayment on a $1.5 million property, a scenario which would leave a borrower needing a $1.35 million mortgage. “Generally speaking, you can borrow four and a half to five times your income today,” he said.
“So that means your household income [on that mortgage] would need to be about $275,000. What proportion of people are actually making $275,000 a year? So I don’t necessarily think that this is exciting.”
Specific examples of hopeful buyers who may benefit from the adjustment, according to Weintraub, could be professionals whose salary skyrockets after reaching their designation – such as physicians or accountants – or a married couple where both individuals earn six-figure salaries. “But on the surface, again, it’s a very small segment [of buyers] if you think of the math,” he said.
Longer amortizations a positive step for first-time buyers
The decision to extend 30-year amortizations to more buyers is a move that’s likely to have a more material impact on the market, Weintraub said.
The federal government is increasing the cap on insured mortgages to $1.5 million and expanding extended amortization periods to address the housing affordability crisis affecting many Canadians.
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 16, 2024
Read more: https://t.co/zBHr7jYP3r
The government’s introduction of three-decade amortizations earlier this summer initially only applied to first-time homebuyers purchasing a newbuild property – but adjustments announced this week expanded that option to all first-time buyers and all purchasers of newly built homes.
Weintraub said that move is likely to increase the amount that many Canadians are able to borrow relative to their income, a welcome development for those who may have previously been on the margins but could now potentially qualify for a starter condo in a softening Toronto market.
That could provide a glimmer of optimism in that market’s darkening outlook, he said. “It might build some stability because all of a sudden now you have buyers. Number one, they’ve got low rates: first-time buyers, lower rates.
“And number two, better for qualification. And number three, now [their] monthly payment is going to be lower because before, the monthly payment might have been $3,000 and now it might only be $2,700, $2,600, depending on the scenario. So people are [finding it] more palatable to buy.”
For single Canadians earning up to $70,000 or so a year and hoping to buy in an urban centre, purchasing prospects will remain “incredibly difficult” despite the rule changes, Weintraub said.
“But again, if you’re a married couple or established nurse or police officer, whatever it is, and you’re making $100,000, at least now you can get into the market,” he suggested. “It’s definitely not going to help everyone, but it’ll definitely help some people incrementally.”
Could the rule changes spur an uptick in the purchase market?
This week’s changes alone are unlikely to bring about a surge in homebuying activity in Toronto – but they seem to be contributing to a general feeling that the market is moving in the right direction.
The Bank of Canada has cut its benchmark rate three times in recent months with further reductions seemingly on the way, and a fall in fixed rates since April is also boosting confidence among homeowners and buyers alike.
For Weintraub, an improving outlook “is more driven by lower rates and anticipation of even lower rates. That’s the big factor. And then this is a nice little sort of push – a tailwind to push us a little bit farther along,” he said. “It’s not going to change the market for the rest of the year, but it will give us a little bit of a push.”
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.
