New federal rules for Canadian mortgages have now gone into effect.
The changes affect properties that cost more than $500,000 – a small percentage of the overall market.
Buyers can still have a five per cent down payment on the first $500,000 of a home purchase but must now put at least 10 per cent down on the portion above $500,000.
Finance Minister Bill Morneau has said the new measure – effective Monday – aims to ensure buyers have sufficient equity in their homes.
Lenders also face new capital requirements to keep pace with the growing risk of the real estate markets that they bankroll.
And Canada Mortgage and Housing Corp. will change the fees it charges issuers of mortgage-backed securities.
The Finance Department has tightened mortgage rules on several occasions in recent years – along with requiring stricter enforcement and management of loans – to weed out marginal buyers and speculators
Here are five things to know about the new rules:
Cough up the cash: Homebuyers now have to put at least a down payment of 10 per cent on the portion of the price of a home over $500,000. For anyone buying a home for $700,000 — a common list price in Vancouver and Toronto — that means the minimum down payment will rise to $45,000 from $35,000. Any home under $500,000 still requires only a down payment of five per cent.
Who’s affected: Primarily those shopping for a home in Toronto and Vancouver. First-time buyers in those cities will feel the pinch since they’ll be required to put down bigger down payments to get into the market. Those selling their homes in order to size up, especially in cities with hot housing markets, likely won’t feel the pain since they’ve built up equity in those properties.
Impact: The influence the new rules will have over house prices is expected to be small, experts say, given their narrow reach. When he announced the changes in December, Finance Minister Bill Morneau said they are expected to affect one per cent or less of the real estate market.
Sales activity: Some analysts expected a surge in sales leading up to Monday’s changes, saying they would lure homebuyers who wanted to avoid making the bigger down payments. Royal LePage CEO Phil Soper says sales activity has been “boisterous” in Ontario, B.C. and Quebec in the first five weeks of this year, but he credits a relatively mild winter and low mortgage rates.
Past measures: Four rounds of changes were made to tighten eligibility rules for new insurable loans between 2008 and 2012. Among them: the minimum down payment was increased to five per cent, the maximum amortization period was reduced to 25 years from 30 years and the maximum insurable house price was limited to below $1 million.