Measures come into effect today
Improving housing affordability was top of the list of priorities for Canada’s federal government in its 2024 budget, unveiled in April – and the administration has moved ahead with a key plank of that platform, the extension of amortization periods for first-time buyers taking out insured mortgages.
Effective today, the maximum amortization length available on an insured mortgage will stretch to 30 years for buyers purchasing their first home, with the important caveat that the option will only apply to newly constructed homes.
Clarifying that purchases of existing homes won’t be eligible for the longer amortizations has been a common call for brokers since the announcement, although would-be buyers are now clearer about which homes qualify and which won’t, according to a Toronto-based broker.
Victor Tran (pictured top), mortgage and real estate expert at RATESDOTCA, told Canadian Mortgage Professional that the restrictions meant affordability was unlikely to see material improvement in the country’s priciest markets as a result. “I don’t think a lot of people will be able to take advantage of it,” he said.
“Especially in markets in the GTA [Greater Toronto Area] or in Vancouver, most of the new builds are over $1 million, and most builders require at least 20% of a deposit anyway – so automatically, those homebuyers won’t even qualify. It’d be difficult to find a new build for less than $1 million [in those markets].”
Canada Mortgage and Housing Corporation (CMHC) only offers insured loans for a maximum purchase price under $1 million, while mortgage insurance isn’t typically needed for purchases with a downpayment of 20% or more.
The Bank of Canada’s second interest rate cut in a row isn’t likely to set the national housing market alight – but it should have a “modest positive impact” in improving buyer sentiment, according to BMO chief economist Doug Porter.
— Canadian Mortgage Professional Magazine (@CMPmagazine) July 30, 2024
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Will homebuyers in priciest markets benefit from new rules?
The new amortization measure was touted in April by federal finance minister Chrystia Freeland as a move that would provide “a lot of comfort and a lot of hope to young Canadians” in facing a torrid affordability outlook in the current housing market.
Tran, however, remained sceptical about the prospect of a marked improvement in first-time buyers’ ability to afford a home as a result of the move. “I don’t think the demand for that 30-year amortization is going to be as high as what most people think,” he said.
He compared it to the First-Time Home Buyer Incentive, a shared-equity program geared towards easing the path to homeownership for younger Canadians and new buyers.
That program, which faced a wave of criticism and saw limited uptake in major markets, was quietly shelved by the government at the beginning of March.
For Tran, the amortization plan is one that sounds good on paper, but is unlikely to move the needle significantly in practice. “It looks good [but] politics aside, I don’t think it’s going to do much,” he said.
“Affordability will improve a little bit because of the 30-year amortization at lower payments. Borrowing power will increase slightly – not as much as what most people hope for, though. It’s roughly a 3% to 5% increase in your borrowing power, really not that much at the end of the day.”
What’s the housing affordability outlook for the rest of the year?
Faced with plummeting poll numbers amid the mounting housing affordability crisis, the government introduced other measures in its federal budget including an increase in the amount first-time homebuyers can withdraw from RRSPs to make a downpayment on a home purchase.
Effective April 16, that move saw the maximum withdrawal limit jump from $35,000 to $60,000, while first-time homebuyers withdrawing money from RRSPs between January 1, 2022 and December 31, 2025 will have a longer time to begin repayments: five years, instead of the original two.
While interest rates have ticked slightly downwards, and home prices have also fallen marginally, affordability is still “close to its worst point ever” across the country, according to a recent analysis by Royal Bank of Canada (RBC) assistant chief economist Robert Hogue.
Writing in early July, Hogue noted that buying conditions were stretched across most of Canada – but affordability appears to be heading in the right direction, helped in part by what’s likely to be a drop in the Bank of Canada’s benchmark rate by a further 1% before the end of the year.
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