Ottawa, December 11, 2015 – Finance Minister Bill Morneau today announced changes to the rules for government-backed mortgage insurance to contain risks in the housing market, reduce taxpayer exposure and support long-term stability.
Effective February 15, 2016, the minimum down payment for new government insured mortgages will increase from 5.0% to 10% for the portion of the house price above $500,000. The 5.0% minimum down payment for properties up to $500,000 remains unchanged.
As an example, for a house priced at $700,000, the minimum down payment for mortgage insurance purposes under the status quo would be $35,000. Under the new system, the minimum down payment would be 5.0% x $500,000 + 10% x ($700,000-$500,000) or $45,000. It is important to note that the homes priced at or above $1 million already require a minimum down payment of 20%.
Today’s announcement represents a graduated approach to increasing the down payment requirement proportionally to the cost of a home. Canadians who already hold mortgages will not be affected by this announcement.
The Government continuously monitors the housing market and is committed to implementing policy measures that maintain a healthy, competitive and stable housing market. Higher homeowner equity plays a key role in maintaining a stable and secure housing market.
In making this announcement, Minister Morneau also highlighted the increases in guarantee fees for Canada Mortgage and Housing Corporation (CMHC)-sponsored securitization programs, announced today by CMHC. The Office of the Superintendent of Financial Institutions has also announced today its plans to update regulatory capital requirements for residential mortgages to ensure that capital requirements keep pace with market developments and risks. Taken together, today’s actions will strengthen the resiliency of Canada’s housing finance system to promote long-term stability and balanced economic growth.
The increase in minimum down payments on homes above $500,000 is designed to target excess risk taking in Canada’s most expensive housing markets. The average price of homes sold in October 2015 through the Canadian Real Estate Association’s Multiple Listing Service® (MLS®) system was about $453,000, therefore this change will have limited impact in much of the country. For those areas where the average home price is currently over the $500,000 like Toronto, this change could adversely affect or delay demand in those markets, particularly for first-time homebuyers. That said, given the incremental nature of the change, and since minimum down payments are less frequent at higher home prices, we expect the overall impact to be relatively minor.