Canada looking to increase minimum mortgage down payments from 5% to 10%

Canada is looking to stop its historic household debt soaring even higher due to the novel coronavirus crisis by requiring higher mortgage down payments, the country’s national housing agency said.

Evan Siddall, president and CEO of the Canada Mortgage and Housing Corporation (CMHC), warned the House of Commons Finance committee on Tuesday that Canada could see mortgage defaults reach $9 billion as a result of the COVID-19 pandemic[1]

“We feel we need to avoid exposing young people (and through CMHC, Canadian taxpayers) to the amplified losses that result from falling house prices,” Siddall said. “Unless we act, a first time homebuyer purchasing a $300,000 home with a 5 per cent down payment stands to lose over $45,000 on their $15,000 investment if prices fall by 10 per cent. (Our calculations include the mortgage insurance premium and the costs of selling the home if forced to do so because of unemployment or any other reason.) In comparison, a 10 per cent down payment offers more of a cushion against possible losses.”

Sidall warned that mortgage deferrals are exacerbating already history levels of household debt.

“Canadians are among world leaders in household debt. Pre-COVID, the ratio of gross debt to GDP for Canada was at 99 per cent,” Sidall told the committee. “Due in part to increased borrowing but even more so to declines in GDP, we estimate it will increase to above 115 per cent in Q2 2020 and reach 130 per cent in Q3, before declining. These ratios are well in excess of the 80 per cent threshold above which the Bank for International Settlements has shown that national debt intensifies the drag on GDP growth.”

Siddall expects the debt multiples of disposable income to shoot up from 176 per cent in late 2019 to well over 200 per cent through 2021, even as CMHC a decline in average house prices of 9 – 18 per cent in the coming 12 months.

“The resulting combination of higher mortgage debt, declining house prices and increased unemployment is cause for concern for Canada’s longer-term financial stability,” Sidall said.

“A team is at work within CMHC to help manage a growing debt ‘deferral cliff’ that looms in the fall, when some unemployed people will need to start paying their mortgages again,” Sidall added. “As much as one fifth of all mortgages could be in arrears if our economy has not recovered sufficiently.”

Sidall said that the agency’s support for homeownership cannot be unlimited.

“Homeownership is like blood pressure: you can have too much of it. Housing demand is far easier to stimulate than supply and the result, as we’ve seen, is Economics 101: ever-increasing prices,” Sidall said. “So if housing affordability is our aim, as surely it must be, then there must be a limit to the demand we help to create, especially when supply isn’t keeping up.”

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24 Responses to Canada looking to increase minimum mortgage down payments from 5% to 10%

  1. Jacqueline Moore says:

    Disgusting, mortgage rates should go down. Lower down payments as well. Banks and mortgage companies should want and need to work more with clients. Instead of making them pay through the nose. Without customers wanting/needing mortgagee you all be out of business.

    • Mike says:

      We own in a nice neighbourhood and have new builds happening all around us, high rate rentals with young families paying 40 to 50% more then what a mortgage would be…..building practices are appalling and cheap. Only one explanatin, young people can’t get mortgages and big business is taking advantage, this is money that the banks are not willing to front but business people will…and are pulling usable after tax income from people who need it. As a country we need better planning and real information, these young people are still getting the housing they need just with no help from the banks/government and at a premium….and with nothing to show for it but someone else’s roof over their heads.

  2. Anonymous says:

    This is an unprecedented time, and they’re talking about changing the mortgages again. Requiring such big downpayments is stupid. They should be looking at proof that you can pay, looking at your affordability and stress tested affordability. If house prices fall, your going to lose money as a seller, there’s nothing you can do about it. They’ve been saying there’s a bubble looming to burst for years now. All a higher downpayment is going to do is artificially lower demand because people need to save more.

  3. Anonymous says:

    It should be 20%.

  4. Old Nick says:

    If you play stupid games you win stupid PRIZES.. Essentially all time lows follow all time highs. This is not a new concept, people need to open their eyes and pay attention. Don’t believe what your told people make up your own minds.. DO YOUR OWN RESEARCH!

  5. Happy Canadian says:

    Sounds like a great way to price out low to middle income Canadians across the country from buying their first home, leaving them rent-poor and more property available for foreign money laundering! Will make those Chinese investors who buy up and leave our properties empty smile. Clever to use this crisis to grind your heels even deeper into the faces of everyday Canadian citizens! In the end, all that really matters are the rich, realtors, and the banks. Guess the rest of us will just have to eat it and wait until our 40s and 50s to be able to afford a home 🙂 🙂

    • Torontonian says:

      I totally agree. My annual salary is 80K. Me and my wife are really struggling to save enough for a 5% down payment for this already rapidly escalating market in GTA, Ontario.

      Between high rent and extremely high prices for homes/condos, I don’t think I can ever own a space big enough to have a baby.

      Things don’t add up in this city. And you see those folks talking about raising the down payment “to protect us”.

  6. Al says:

    They are making it impossible for families with low to mid range incomes and also newcomers to buy a home. This is not people’s fault that government failed balancing the demand and supply!

  7. Give me a raise says:

    Fucking bullshit

  8. Bob says:

    People feel so entitled to owning homes. If you cannot afford it, don’t buy it.

    The downpayment should be much higher like 20% to reduce risk to tax payers and to encourage young people to save more money before buying.

    There is a general lack of financial discipline in Canada. We don’t teach out kids to live within our means and get used to needless carrying credit card debit. Gotta get that $1000 phone every year and drive expensive cars.

    Lesson 1 kids: If you can’t afford it, don’t buy it.

    • Anonymous says:

      You try to come up with 100 thousand dollars to buy a home when paying 2000 dollars in rent 20 percent is ridiculous

    • Bruh says:

      Buddy I make 100k a year which is probably a lot more than young people my age and pay all the taxes in the world. I’m living in a propety that’s 600 sq foot and renting it for almost 2k. With all other expenses thrown in it’ll take me probably 20+ years to save for a propety that’s 700k.

    • Anonymous says:

      Says the guy who probably bought a house 30 years ago for 45k, that would now sell for 275k just from pricing inflation.

    • Steve Pare says:

      At the current appreciation rate of real estate waiting and saving is not a good strategy. For a $400,000 property appreciating at 5% you need to save 20k a year just to stay even.

      • DownToFinance says:

        Do you guys understand that increasing the minimum downpayment to just 10% will reduce housing prices by a huge amount? The same downpayment that you have saved will go towards buying you more house.

        Runaway prices started when the government reduced the minimum downpayment to 5%, introduced 30 year amortizations and backstopped the entire housing economy with taxpayer money. Everything politicians say they do to make housing more affordable is actually making it more expensive. If you want housing to be cheaper, demand needs to be curbed. These mortgages changes are not even enough, they should go further.

  9. The Lad says:

    Let’s get real – the problem is greedy man kind driving prices up can you really justify paying over $1,000,000.00 for a pcs of shit home in the GTA – Capitalism at it’s best

  10. Alex Rod says:

    All of this is great. Making housing affordable for young couples
    But has anyone thought of existing couples who have invested in this housing dream that CMCH earlier created??
    If housing goes down, a big part of society goes down with it.
    Sounds like a cop out solution for the govt. to make housing affordable for young people by making current landlords suffer.
    The cycle will repeat again in 20 years and CMCH will always emerge as saviours

    • DownToFinance says:

      The government is doing everything it can to bailout homeowners and increase demand for home buying. This is at odds with how the CMHC sees housing: it’s not an investment, it’s shelter and we should make it as cheap (affordable) as possible so everyone has access to it.

  11. Dan says:

    Well that wont stimulate the economy, already reeling @justintrudeau. Dumb idea

  12. Vishnu says:

    Banks are taking every penny they get from their customers,while central bank interest rates at the lowest, the banks lending to their wealthy customers at special rates and are charging the highest rate to regular customers, very unfair.

  13. Steve Pare says:

    At the current appreciation rate of real estate waiting and saving is not a good strategy. For a $400,000 property appreciating at 5% you need to save 20k a year just to stay even.

  14. Steve Pare says:

    The banks make billions a year, if they want to give me a mortgage at 5% why does the government need to step in and say ‘NO’. Let the bank take the risk and decide how they will lend me money and if I don’t like what one bank is doing I’ll go to the other.

  15. Joshua Boyko says:

    It would seem when government agencies step in to securitize loans the prices never go down, rather the lending or providing institution continues to raise prices as the pool of potential buyers now includes “risky” loans secured by the government( similar to tuition in the US and to a degree in CAN). If there is no agency to protect the intersts of the BANKS (CMHC protect the banks not the people) they have to make risk calculations and may require more money down. IF this shrinks the buyers market prices will need to come down as fewer can buy. People will need to choose to live in areas that are more affordable. We have had a house for only 12 years and had to pick to live in an area we can afford. If I want to move to Vancouver and buy a home for 1.2 MIll why should the government (tax payers!) be responsible for me to buy that with 5% or less down?

  16. Luke says:

    Perhaps we should rather focus on making credit card debt and auto loans stricter, instead of mortgages?

    That sure will curb frivalous spending on unnecessary things and people may start to learn what it means to save up for things?

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