This Monday, September 16th , the Liberal government unveiled Proposed Reforms to the Canadian mortgage market aimed at increasing accessibility for homebuyers. The changes include expanding the availability of 30-year amortizations for insured mortgages and raising the cap on these insured products to $1.5 million from the previous $1 million limit.
Under the new rules, first-time homebuyers and those purchasing newly constructed homes will have the option to take out insured mortgages with a 30-year amortization period, up from the current 25-year amortization. Additionally, the cap on insured mortgages will be raised, allowing buyers to purchase homes up to $1.5 million with a lower down payment.
These changes are scheduled to take effect on December 15. Deputy Prime Minister and Minister of Finance Chrystia Freeland announced the reforms in Ottawa as Parliament reconvened for the fall session.
Freeland framed the policy adjustments as a means to make home ownership more attainable for young Canadians, asserting that the extended amortization period and higher cap will alleviate the financial burden of buying a home. “It is going to put the dream of home ownership in reach for more young Canadians,” she said.
However, the proposal has sparked concerns about its potential impact on housing affordability. Critics worry that increasing the number of buyers in the market might drive up home prices, potentially offsetting the benefits of the new policies. Freeland countered these concerns by emphasizing that the reforms would strengthen the position of first-time buyers and stimulate housing supply by encouraging more new builds.
The changes follow recent reforms introduced on August 1, which also included 30-year amortizations for first-time buyers of new homes. Freeland highlighted that these measures are part of a broader strategy to address Canada’s housing supply gap by incentivizing builders to accelerate construction.
What does this mean for current homeowners and new homebuyers?
Basically, this is the Federal Government trying to jumpstart the Housing Market and increase housing prices, which would pour some gas into the Canadian Economic Engine. They do mask it as improving affordability for First Time Buyers, and this is true for the fortunate few who can get in early. But in a few years, the eternal wisdom of the market will price in these lending policy changes and all subsequent first time buyers will have to compete with the higher prices and more debt.
First Time Buyers in the Greater Vancouver Area and Great Toronto Area these changes are in the most need of this change. Many young professional couples have strong earnings but may have focused on paying down student debt in the years after graduation. They enter their prime homebuying years with the issues of saving a 20% down payment if they wish to fully leverage their income.
But the obvious danger of this policy will be rapidly inflating the house prices of those homes in the $1 Million to $1.5 Million zone, as they now have a new cohort of potential buyers bidding on them. Then these changes will bring up all other parts of the housing market, as prices adjust to the new demand created by lower down payment requirements and higher amortizations for that market segment. We will have to wait until December to see these changes take effect so the real proving ground will be the 2025 Spring Market.
