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Finance Minister Chrystia Freeland on Monday announced changes to some mortgage rules as part of an effort to make housing more affordable, although some housing experts are doubtful that the new measures will have a meaningful long-term impact on housing affordability and say they might even push prices up.
The federal government will increase the cap on insured mortgages to $1.5 million from $1 million, effective Dec. 15, which would allow more people to buy a house with a down payment below 20 per cent.
Previously, Canadians who do not pay at least a fifth of the cost of the house as a down payment need to take out mortgage insurance, but the insurance was available only for homes priced at $1 million or less. That limit is now $1.5 million.
In addition, purchasers will be able to take out loans for a 30-year period if they are first-time homebuyers or if someone is buying a newly built house, Freeland said. Earlier, the three-decade amortization period was limited to first-time buyers buying newly built houses.
The measures will “incentivize more new housing construction and tackle the housing shortage,” Freeland said in a statement.
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The announcement was met with mixed reaction from analysts. RateHub.ca mortgage expert Penelope Graham wrote that expanding the criteria for 30-year mortgage amortizations and increasing the insurance cap “will greatly improve first-time homebuyers’ access to the housing market.”
Minister of Finance Chrystia Freeland says increasing the price cap ‘is going to put the dream of home ownership in reach for more young Canadians.’ Freeland also announced the federal government is allowing 30-year mortgage amortizations for all first-time homebuyers and for all buyers of new builds.
Under the new rules, buyers can purchase more expensive home types with smaller down payments. But it’s unclear how the new rules would improve affordability for those coming up on their mortgage renewals, she noted.
Marc Desormaux, a principal economist with Desjardins, said that the changes will mostly benefit some homebuyers who are able to get into the housing market once the policy changes take effect.
“But from a broader societal perspective, there is a risk that this simply stimulates homebuying demand, puts more pressure on prices and ultimately makes affordability worse over the longer run,” said Desormaux.
Homebuilding groups have lobbied for longer amortization periods to boost construction, arguing that more homebuyers in the market would encourage developers to build more homes.
‘No quick fix to our housing crisis’
While it’s possible that the changes will lead to more supply, Desormaux said there are many factors beyond demand from first-time homebuyers that are “holding back our homebuilding ambitions” — including a dearth of skilled labour in the construction sector and the high cost of building.
Toronto realtor John Pasalis called the changes “a terrible policy,” criticizing the changes as “a quick fix to satisfy some younger buyers.”
“It’s a stimulative policy designed to increase home sales and really just drive the market forward,” Pasalis said. “The reality is that there’s no quick fix to our housing crisis … the housing crisis is going to be solved with long-term [measures].”
In Canada, mortgages are typically for 25 years and the rate resets every three or five years. In the United States, homeowners can enjoy a fixed rate for the entire life of a 15-year or 30-year mortgage.
The structure of Canadian mortgages exposes most borrowers to rising interest rates and has helped fuel a housing affordability crisis.
Prime Minister Justin Trudeau’s polling numbers have slumped to an almost all-time low of 30 per cent in September, which analysts and economists have said is primarily because millions of people are wrestling with high prices, especially of homes and rents.