Building Magazine


New mortgage rules mark one-year anniversary

Marking the one-year anniversary of the most recent changes to mortgage rules in Canada, a BMO Bank of Montreal report reveals how the new measures have affected first-time home buyers.

The rule changes for government-insured mortgages – which went into effect July 9, 2012 – include reducing the maximum amortization to 25 years from 30 years and lowering the amount of equity that can be borrowed against a home from 85 per cent to 80 per cent of the property’s value.

According to the survey, the majority (66 per cent) of first-time buyers indicate that the recent changes have not affected their timeline for buying their first home. One-in-five (19 per cent) said the changes have prompted them to wait longer to buy, while 14 per cent will buy sooner.

The report also noted the average amount first-time home buyers plan to spend is approximately $300,000, with an average down payment amount of $48,000 (16 per cent).

According to Doug Porter, Chief Economist at BMO Capital Markets, the new mortgage rules have helped contribute to a soft landing in the real estate market. “While Canadian home sales weakened markedly at the time of the mortgage changes a year ago, they have since stabilized and have even partially recovered in recent months,” said Porter. “For instance, Vancouver saw its home sales rise 12 per cent year over year in June.”

The survey, conducted by Pollara, also revealed the following regional differences among first-time home buyers across Canada:

  • First-time buyers in Ontario are the most likely (76 per cent) to say that the mortgage rule changes will not affect their buying timeline
  • British Columbians are the most likely (33 per cent) to wait longer to buy their first home because of the measures
  • Those in the Prairies and Quebec are the most likely (19 per cent) to say they will buy sooner

“First-time buyers should stress-test their mortgage to ensure they are well financially prepared for homeownership and a potential upswing in interest rates – not only to manage costs, but also to pay off their mortgage as soon as possible,” said Frances Hinojosa, a mortgage expert at BMO Bank of Montreal. “Determining what your mortgage payments and overall costs of home ownership will look like, and then living in that financial reality for a year before entering the market, can be an effective strategy.”

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