New World Order On Down Payment

The new Finance Minister announced changes to the down payment rules we all knew were coming from last week’s blog post. Simply put, they are the lowest-hanging fruit for the Government to use in order to cool things. Let’s face it - things are out of control in Toronto specifically. If you’re a buyer or buying Realtor you know how insane things are. If you’re a listing agent, you know how insane things are. If you’re a lender or mortgage broker, you know how insane things are. So why not change things up a little bit to cool things off?

This is the sixth version of mortgage rule changes we have seen in the past 10 years and like the previous five, this one will do little to cool things. It will certainly help a little bit, especially on the higher-end, but it is the most gradual and relaxed rule change that could have been implemented. Imagine having to have 20% down on any priced home in the GTA? That would’ve really put a big bucket of ice on our market, kind of like the ALS ice-bucket challenge, except it would have meant not just getting wet but seeing your value of your property decrease. This minor rule change is meant at the higher-end, and it’s done in a very gradual stage that will really not impact things to a great deal.

For any property priced under the $500,000 mark you’ll still be able to buy with 5% down.

For any property over $500,000 you will need 10% down payment on the dollar amount that exceeds the $500K limit.

Example, $450K house is $22,500 down.

$650,000 house is:

5% of the first $500K, or $25,000, then 10% of the remaining $650K-$500K=$150K=$15K

Therefore you’d need $25K plus $15K or…


BIG. NEWS. (maybe). 10% down new minimums?

There has been a lot of speculation about a potential increase to down payment rules from 5% to 10%, especially with the Vancouver and Toronto housing markets continuing their incredible run.

Both Bloomberg and Canadian Mortgage Trends reported today these potential moves brought on by the Liberal Government. “As many as 115,000 buyers across Canada may not afford a 10% down payment”. There is also talk of a sliding scale policy where the 5% down payment would still work for homes under $500,000, 7% being required for $500,001 and $700,000, and 10% on anything over $700,000.

The worst part? If this is to happen expect it to happen fast, without warning, and potentially without much heads up.

The second worst part? This would cause huge damage to a very weak market outside of Toronto and Vancouver as is evident by the charts below. Our prices are way up, the rest of the country has faltered. Same with our sales, and conversely our inventory is very low, while listings are at a record across the board everywhere else.

If you are a 5% down buyer you’ll want to step up you game or risk being completely priced out. NOT because prices will necessarily rise but because the down payment will.

If you are a sellers of a home in these price ranges you should sit down with your Realtor and speak about the potential impacts these changes may bring to demand of your homes.

If you have questions please let me know and I will, of course, pass on the information as I get it.

As with the six previous mortgage rule changes AND the Toronto Land Transfer Tax, and considering my experience of approximately 200 closings per year, I do not think this will…

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