In mid-September, Minister of Finance Chrystia Freeland announced two new reforms intended to make homeownership more attainable and affordable for Canadians: raising the price cap for insured mortgages by $500,000 and greatly expanding eligibility for 30-year mortgage amortizations.
This Sunday (December 15, 2024), those reforms kick in. Here's what you need to know about the changes.
The reforms build upon the 2023 Canadian Mortgage Charter — legislation meant to encourage tailored support for mortgage owners facing severe financial stress — which, along with interest rate drops, "will make mortgages more affordable and put homeownership back within reach for Canadians," said a media release from the Government of Canada.
First up, the Federal Government has increased the $1 million price cap for insured mortgages to $1.5 million. Currently, mortgage loan insurance is not available for homes purchased for over $1 million, preventing many would-be-homebuyers, specifically first-time buyers and the younger generation, from purchasing a home with a down payment of less than 20%.
The previous $1 million cap is a hold-over from 2012, when home prices were significantly lower, explained the release. But now, the average home price in Toronto clocks in at $1,106,050, as of November, and in Vancouver, homebuyers enjoy an average price of $1,276,716, meaning that the "average" home is now likely to be north of $1 million in these major cities. With the price cap set to increase to $1.5 million, many more Canadians will now be able to qualify for a mortgage and receive mortgage loan insurance.
Accompanying the price cap increase announcement is the expansion of eligibility for 30-year mortgage amortizations to include all first-time homebuyers and all new builds. The expansion followed the August 1 introduction of 30-year mortgage amortizations — an effort that was meant to make monthly mortgage payments more affordable for young, first-time homebuyers, but was criticized by experts for not being adequately far-reaching.
At the time, Toronto mortgage broker and commentator Ron Butler told STOREYS that his firm's calculation found the program would only be used by 6% of high-ratio buyers. Now, "given inflation and interest rates have fallen, the government is expanding access to lower monthly mortgage payments to all first-time homebuyers and to all buyers of new builds," said the release from the Feds.
Over at the Toronto Regional Real Estate Board (TRREB), CEO John DiMichele celebrated the reforms, but pushed for increased accessibility. "We have long advocated for these measures, particularly for homeowners to be able to switch lenders at mortgage renewal without a stress test," he told STOREYS in September. "Increased competition among lenders is good for homeowners and homeownership, so we reiterate our call for this measure to be extended to mortgage renewals for those who do not require mortgage insurance."
While these government reforms may directly benefit homebuyers, they could also have positive knock-on effects in the home building segment, as Canadian Home Builders' Association (CBHA) CEO Kevin Lee pointed out. "CHBA is very pleased to see these moves on the mortgage rules," Lee had said. "Better access to mortgages will enable buyers to access the market, driving more housing starts and giving industry a chance to push towards targets to close the supply-demand gap. Canada can’t aim to double housing starts, or to industrialize the housing sector to achieve that, if buyers can’t buy—it is exactly these types of policy changes that are needed to create the conditions necessary to move forward.”
But Ross McCredie, CEO of Sutton Group, feels the reforms may not be as impactful as the government and others say they will be. "I don't know that the two announcements today, materially, are going to change much," McCredie told STOREYS in September. "But obviously, the government is recognizing that there's a huge issue related to housing and overall affordability in Canada."
McCredie's issue is largely with the sentiment that increasing mortgage durations makes them more affordable. "If you were my best friend and you asked me if you should [enter into a 30-year mortgage], I would suggest you not do it, because a lot of the time the basic math is not in your favour," said McCredie. "You’re far better off to save up a little bit longer and make sure that you can afford a 25-year mortgage. In fact, you want to pay down any mortgage as fast as possible."
His other gripe is that the reforms target first-time homebuyers, which he feels are not the segment that will be the ones to move the needle on housing affordability. "When you have unemployment rates raising and real GDP numbers coming down, people don't have confidence in the economy," McCredie said. "And thats an issue when 70% to 80% of presale condos, for instance, in the GTA and Toronto, are bought by investors and then rented out. Those people are not coming to the table based on these [reforms]."
As for the government, they're calling the actions "the most significant mortgage reforms in decades" and highlighting the role they could play in helping achieve the Fed's plan to build nearly four million new homes, making homeownership a more realistic dream to strive for. “Everyone deserves a safe and affordable place to call home," said Housing Minister Sean Fraser. "And these mortgage measures will go a long way in helping Canadians looking to buy their first home."
