30-year mortgages more accessible

The federal government is making changes to the rules for insurable mortgages to make it easier for Canadians to buy their first residential property, it says.

Thus, as of December 15, eligibility for a 30-year amortized mortgage will be extended to all first-time home buyers, regardless of the type, new construction or existing property.

This measure will also be extended to all buyers of a newly built primary residence, whether or not it is their first residential purchase.

Extended amortization is a double-edged sword. At a given borrowing level, borrowers will be able to reduce their monthly payment by a significant amount, which is not insignificant. However, paying off a mortgage over a longer period of time increases the interest bill by tens of thousands of dollars over the life of the loan.

A follow-up to last August’s announcement

Eligibility for 30-year amortized mortgages had already been amended last August to include first-time residential property buyers, but only if the property was new construction.

In addition, the federal government is raising the price ceiling for insured mortgages, that is, with a down payment of less than 20% of the purchase price. This ceiling will be increased by 50%, from $1 million to $1.5 million.

The measure is aimed primarily at the Toronto and Vancouver residential markets, where the average cost of homes exceeds $1 million and is out of reach for young households, even with good incomes.

At a press conference in Ottawa on Monday, federal Finance Minister Chrystia Freeland said that these measures to ease mortgage rules are intended “to create fairness between generations and allow young Canadians to have that Canadian dream and buy their first home.”

Unlikely effect

Residential property market observers say that these measures to ease mortgage rules are unlikely to offset still high interest rates and the very expensive cost of residential property.

“Despite the continuation of the monetary policy easing cycle [baisses de taux d’intérêt]”The residential property market remains sluggish, with no signs of significant recovery,” said Daren King, economist at National Bank, in a market analysis note published Monday, along with updated residential property sales data in Canada.

“Although interest rates have fallen, they remain deep in restrictive territory [niveau élevé]. Therefore, the conditions of affordability [d’un achat résidentiel] remain extremely difficult, as the job market continues to deteriorate across the country, and even more acutely among young people.

On the other hand, residential builders are immediately pleased with this extension from 25 to 30 years of the maximum amortization period for mortgage loans.

“This important measure will undoubtedly encourage young families to acquire property,” says David Goulet, director of the economic service at the Association des professionnels de la construction et de l’habitation du Québec (APCHQ).

“For us, one measure is good, a bunch of measures is even better,” he continues. Among other things, despite the successive reductions in the key interest rate (of the Bank of Canada), it remains high. We are also thinking about the relaxation of the financial stress test (for new mortgage borrowers), the improvement of the GST refund on new properties, as well as the transformation of the TFSA and the HBP (from an RRSP account) into intergenerational savings plans.”

Tenants’ Charter

Separately, the Trudeau government also announced plans Monday to follow through on its recent promises to implement a “Tenants’ Charter of Rights” and a “Home Buyers’ Charter.”

Federal Justice Minister Arif Virani says Ottawa intends to work with the provinces to prevent practices like reno-evictions, where landlords evict tenants and do minimal renovations before re-renting at higher rents.

However, when this idea was raised by Prime Minister Justin Trudeau last March, the Quebec Minister responsible for Canadian Relations, Jean-François Roberge, immediately stated that “there was no question of tolerating this new invasion of Quebec’s areas of jurisdiction.”

With The Canadian Press