On Monday, the Canadian federal government announced significant changes to mortgage regulations, aimed at improving access to home ownership for first-time buyers and those purchasing newly built homes. The decision, led by Deputy Prime Minister Chrystia Freeland, introduces an option for 30-year amortizations on insured mortgages, in contrast to the previous 25-year term, providing an opportunity for many Canadians to stretch their mortgage payments over a longer period. This adjustment applies not only to first-time buyers but also to anyone purchasing a new build. Additionally, the government has lowered the down payment requirement for homes priced between $1 million and $1.5 million, in an effort to better align with current housing market realities.
The introduction of 30-year amortizations for first-time buyers and new build purchasers follows a decision earlier in the year, which came into effect on August 1, allowing for the extended mortgage term on new builds for first-time buyers. Now, with this latest announcement, any buyer of a newly constructed home, whether they are a first-time buyer or not, can take advantage of the same 30-year repayment period. This is also extended to first-time buyers purchasing resale homes with an insured mortgage, which requires less than 20 percent of the home’s purchase price as a down payment. The changes are set to take effect on December 15, providing a longer repayment horizon for many potential homeowners.
Freeland emphasized that these changes would help more young Canadians achieve home ownership. By extending the amortization period, monthly mortgage payments would be lower, making homeownership more accessible for individuals who might have struggled with the higher monthly costs of a 25-year term. However, the government also hopes these measures will increase the demand for new housing, thereby stimulating home construction across the country. Developers have been facing difficulties in launching or completing projects due to high interest rates and rising construction costs, particularly in high-demand areas like the Greater Toronto Area (GTA).
The government’s decision to adjust the down payment requirement for homes priced between $1 million and $1.5 million is another key change. Previously, buyers purchasing homes over $1 million were required to provide a minimum down payment of 20 percent. With this threshold now raised to $1.5 million, buyers of homes priced within this new range can make a lower down payment. Freeland acknowledged that the previous threshold, set in 2012, no longer reflected current housing market conditions, where home prices have risen significantly over the past decade, particularly in major urban centers.
The announcement has been met with a mix of optimism and concern. Industry players, including mortgage brokers and developers, expressed hope that the new regulations would bring more sidelined buyers into the market, offering a much-needed boost to the home construction industry. With more buyers able to afford homes, builders could see increased demand for new housing projects, potentially helping to alleviate Canada’s ongoing housing shortage.
Mortgage broker Mary Sialtsis noted that the changes could be particularly impactful for her clients, some of whom had been hesitant to buy due to high interest rates. The extended amortization period could provide them with the financial flexibility needed to move forward with home purchases. She also highlighted the importance of the adjusted down payment threshold, particularly in expensive markets like Toronto, where homes are frequently priced over $1 million. Sialtsis explained that, under the new rules, a buyer purchasing a $1.2 million home would only need a $120,000 down payment at 10 percent, compared to the $240,000 required under the previous 20 percent rule.
However, while these changes may offer some relief for potential buyers, they also raise concerns about further inflating home prices in an already undersupplied market. Canada, and especially the GTA, has been grappling with a chronic housing shortage, and any policy that boosts demand without corresponding increases in supply could lead to higher home prices. Sialtsis acknowledged that the increased borrowing power could result in multiple offers on homes, driving prices even higher in certain areas.
John Pasalis, president of Realosophy, a real estate brokerage, echoed these concerns. He argued that while the changes might benefit some buyers who are close to affording a home, they ultimately represent a short-term fix that could have long-term consequences for affordability. Pasalis views the policy as more of a stimulative measure for the housing market rather than a solution to the affordability crisis. By allowing people to take on more debt, he said, the government may inadvertently push home prices higher, making it even harder for many Canadians to afford homes in the future.
Ron Butler, another mortgage broker, pointed out that the changes to the down payment rules would primarily benefit higher-income households—those who can qualify for mortgages over $1 million. He noted that such mortgages are typically only accessible to households with annual incomes in the hundreds of thousands, far beyond the reach of many average earners in the GTA. Alternatively, some buyers might rely on co-signers, such as parents, to qualify for these larger loans, further limiting the policy’s impact on the broader population.
Housing policy expert David Hulchanski from the University of Toronto expressed additional concerns about the potential for price inflation and the risks associated with increased household debt. He emphasized that Canada already allocates a significant portion of its financial resources to the housing sector, which could be more productively invested elsewhere. Hulchanski worries that encouraging Canadians to take on larger loans could exacerbate existing economic vulnerabilities, especially in a market where prices are already out of reach for many.
The Canadian Home Builders’ Association acknowledged these concerns in a statement following the announcement but argued that the root cause of rising real estate prices is the imbalance between supply and demand. The association cautioned that without an urgent increase in home construction, the combination of lower interest rates and higher borrowing power could lead to further price hikes in a market already constrained by limited supply. It called for a comprehensive approach to addressing the housing shortage, with mortgage rule adjustments being just one part of the solution.
In conclusion, while the new mortgage rules offer potential benefits for first-time buyers and those purchasing new builds, they also carry the risk of driving up home prices in a market where supply remains limited. The government’s efforts to stimulate home construction are essential, but without a substantial increase in the number of homes being built, the policy changes could ultimately lead to more Canadians taking on larger debts in an increasingly expensive housing market.