A sharp increase in the down payment required to buy more expensive homes using government-backed mortgage insurance will affect low-equity buyers but is “not a game-changer” for the B.C. housing market, according to Helmut Pastrick, Central 1 Credit Union’s senior economist in Vancouver.
However, other analysts say the increase in down payments to 10 per cent from 5 per cent on home values above $500,000 to a maximum of $1 million will have a chilling effect on both home sales and real estate agent incomes.
“These changes are not good for realtors, especially those in B.C. and Alberta,” said Ryan Suchet, president of Toronto-based Capital Growth Financial Corp., a company that provides commission advances to Canadian real estate agents. “We expect to see fewer home sales and lower commissions earned in 2016 when the rules take affect.”
Under changes that came into force February 15, 2016, the minimum down payment required for mortgages insured through Canada Mortgage and Housing Corp. (CMHC) will remain at 5 per cent for homes priced below $500,000, but rises to 10 per cent on homes valued above $500,000 and below $1 million.
For example, on a $900,000 home – close to the average price in Metro Vancouver – the down payment required would be 7.8 per cent, or $70,200, compared with $45,000 under the current regulations.
“Low-equity buyers will require more skin in the game and more skin at higher prices,” Pastrick said. “This [policy change] is not a game-changer for the housing market given it will affect only subset of the population.”
According to the Mortgage Professionals of Canada, however, two-thirds of first-time buyers in Canada this year had down payments of less than 20 per cent, a level that requires mortgage insurance, either through CMHC or private insurers. CMHC now provides insurance for half of the mortgages in Canada, down from 54 per cent in 2014, according to CMHC executive officer Evan Siddall.
Pastrick noted that higher down payments will affect buyers of detached homes looking for houses with a rental suite.
In September, CMHC ruled that 100 per cent of the gross income from a rental suite could be applied to a buyer’s income to help him or her qualify for a mortgage. In Metro Vancouver, nearly all such houses are priced above $500,000, and Pastrick said the down payment barrier “will constrain this source of rental supply.”
Residential investors buying a second property for rental income already have to pony up at least a 20 per cent down payment, as do buyers of any homes priced above $1 million.
In early December, Vancouver real estate analyst Ozzie Jurock said an immediate effect of the down payment increase could be a spike in home sales as low-equity buyers attempt to purchase before the changes come into effect.
That may have held true: February housing sales across the Lower Mainland smashed all-time records for that month, according to local real estate boards.