FREELAND ALLOWING MORE 30-YEAR MORTGAGES, HIGHER VALUES FOR INSURED MORTGAGES
OTTAWA — Finance Minister Chrystia Freeland announced Monday Canadians will be able to borrow for longer, while also increasing the maximum value for insured mortgages, potentially giving buyers more money in the housing market.
Freeland announced that starting on Dec. 15, the cap for insured mortgages will rise to $1.5 million from the $1-million cap today. This would allow buyers to qualify for larger mortgages without putting 20 per cent down.
On the same day, the government is also expanding the availability of 30-year mortgages. In the spring budget, the government expanded the eligibility of those long-term mortgages to new buyers who were purchasing new builds.
But now the 30-year availability will apply to both new buyers and people buying new construction homes.
Freeland said the changes will put more buying power into the hands of first-time home buyers and give them an advantage in the market.
“We also spoke to a lot of economists. We spoke to a lot of housing specialists. We spoke to a lot of people in the financial sector. And really what this is all about is putting the dream of home ownership in reach for younger Canadians, giving first- time home buyers a leg up in the housing market,” she said.
The government has pledged to build four million homes by the end of the decade, but housing starts have been sluggish in recent years and are not happening at a pace that would reach that target. Freeland said offering looser mortgage terms is about encouraging builders to get more shovels in the ground.
“Canada needs to get more homes built faster. In order to get those homes built faster, more people need to be buying them,” she said.
She said the $1-million cap on insured mortgages was set in 2012 and the country’s GDP has risen 65 per cent since then, making it a dated measure.
“I think this is really a question of recognizing economic reality,” she said.
Michael Brooks, CEO of the Real Property Association of Canada, a group that represents real estate investors, developers, builders and other major real estate firms said he doesn’t see the new changes will have a significant inflationary impact.
He said 30-year amortizations on million dollar homes only slightly lower someone’s actual monthly payments.
He said raising the insured mortgage cap will have a much bigger impact, especially for someone saving up a downpayment. He said it will make it easier for people purchasing homes in hot markets where few places are available for less $1 million. The Canada Mortgage and Housing Corporation insures mortgages, but Brooks said the number of defaults is incredibly low and the crown corporation can manage the additional risk.
Mike Moffatt, a housing expert and director at the Smart Prosperity Institute, also said the new rules are a step in the right direction, though he does believe the new longer amortizations should have been time limited.
“Five or six years from now, if we find ourselves in a very hot housing market across the country, this could add fuel to the fire,” he said.
He agrees with Freeland that this should help first-time buyers, giving them a slight edge.
“It tilts the playing field just a little bit in their favour.”
Moffatt said home builders sitting on product they can’t sell are not going to put more shovels in the ground.
“We have a problem with the unsold stock of condo inventory, which is slowing construction of new housing. This should help address that.”
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