The federal government is increasing the minimum down payment for higher-priced homes in Canada effective February this year.
Homebuyers are currently required to put down a minimum of five per cent to qualify for Canada Mortgage and Housing Corporation insurance. Once the new rules are implemented in February 2016, someone looking to buy a $750,000 home would need to have a minimum down payment of $50,000, which is what you get when you add five per cent of $500,000 and 10 per cent of the remaining $250,000.
Homes priced at more than $1 million by law require a minimum down payment of 20 per cent, and therefore the CMHC guarantee doesn't apply.
According to the Canadian Real Estate Association, average home prices in Toronto are now more than $630,000 — a 7.5 per cent increase over last year. In Vancouver, the average is now close to $1 million — rising by more than 15 per cent in the last year alone.
Some researchers believe this measure will have a minimal impact on house sales and prices, that this is implemented to deter a very small segment of buyers from going into the market with a very small equity position and to decrease the vulnerability of the CMHC.
Factors driving home price gains in Toronto and Vancouver, limited detached-home supply, high demand, low mortgage rates and inflows of foreign wealth, will still play the same role despite of this new mortgage tightening.