How Canadian Down Payment Rules Affect Homebuyers

How much home can you afford? First time homebuyers or those looking for a new home may be impacted by the changes to the down payment minimum and may need to save up a little longer for the Mountainview home of their dreams. What should buyers know about the Canadian down payment as it applies to different home prices?

Understand more about down payment minimums and changes to the Canadian housing market.

A New Minimum Down Payment

Homebuyers may have a difficult time coming up with money for a significant down payment on the purchase of a home. It appears lenders may get their way and the minimum down payment may soon rise. This may make it harder for first-time home buyers to get into a desired home and they may have to go for a more affordable home in order to pay the requisite down payment. In 2015, government policy-makers were throwing around the idea of a graduated minimum down payment threshold. In this idea, homes and mortgages priced under $500,000 would require 5 percent down, homes between $500,000 and $700,000 would need 7 percent down, and homes over $700,000 would require 10 percent down.

The supposed rationale for this graduated down payment scale was to minimize taxpayer exposure to losses on insured mortgage defaults and create tougher lending requirements which would cool the housing market. Having a graduated scale may squeeze marginal borrowers and defer the purchase of a home until some buyers can save the minimum down payment. However, areas with condos, such as Vancouver and Toronto may experience a boost in sales. This may serve those condominium developments but may leave other types of homes with fewer qualified buyers.

Current homeowners are now limited in that they may not purchase homes in Canada over $500,000 with only 5 percent down. These changes went into effect in February 2016. Homes for less than $500,000 require 5 percent down. Homes from $500,000 to $1 million require a minimum of 10 percent. Anything over $1 million needs a 20 percent minimum down payment. Those most greatly impacted were buyers looking to purchase a property between $500,000 and $1 million as previously they were able to put only 5 per cent down.

Has The Canadian Market Changed?

Markets in Toronto and Vancouver continue to be unfazed by the new minimums. Home prices in Toronto continued to grow according to figures for January 2016. However, there is speculation that if these changes do not have the intended effect of slowing the housing market, new legislation may be introduced to slow the housing market. Nevertheless, this does not serve to increase the supply of properties in hot markets, which would help address the demand in larger cities such as Toronto and Vancouver.

Calgary may be one market impacted by this scheme. The city has a larger share of high-ratio mortgages. While the average has not changed much, sales and listings have been down year after year and listed homes are on average staying longer on the market.

The Smart Buyer

Home buyers should be aware of the trends occurring in different regions of Canada. Set aside the money required to buy into a hot market or take advantage of lower priced homes in areas such as Edmonton. Review the properties available and save up the required down payment to make the best choice for your budget and preferences.