Buying a home over $500,000?
Down payment increased to 10% on homes valued at $500,000 or more as of Feb. 16, 2015 by fed gov’t.
Finance Minister Bill Morneau announced last week that while the minimum down payment on homes valued at $499,999 or below will stay at 5%, the down payment on homes valued at $500,000 or more will now be a minimum of 10%.
Most experts are saying this will have little impact on stemming the prices of a housing market continuously on the rise.
“Rather than a blunt instrument to cool the market, this is a targeted measure designed to deter a very small segment of buyers from stretching into the market with a very low equity position,” said Robert Kavcic, senior economist at BMO Capital Markets.
“This will impact one per cent or less of the market,” Morneau told a news conference.
Terry Pedwell, The Canadian Press, wrote in Canadian Business that for buyers in Toronto, where the cost of an average home has reached $625,000, the change will mean they’ll have to come up with an extra $12,000 in order to qualify for mortgage insurance through the Canada Mortgage and Housing Corporation.
Pedwell also states that stiffer down payment requirement is one of three new measures targeting the stability of the housing market. Financial institutions will face new capital requirements to keep pace with the growing risk of the real estate markets they bankroll. And Canada Mortgage and Housing Corp. will change the fees it charges issuers of mortgage-backed securities.
Housing prices in Toronto have increased roughly, on average, 10% this year in Toronto, as per Gurinder Sandhu, the Ontario-Atlantic Canada Vice President of RE/MAX Integra. RE/MAX is also predicting that the housing market price increases will stabilize in 2016, regardless of this new federal rule.
“Hot markets in Ontario and B.C. are being driven by purchasers with larger down payments, whether it be millennials getting help from their parents, move-up buyers, and/or domestic or foreign investors,” said Derek Burleton, deputy chief economist at TD Economics.
What does this mean for you?
If you are planning to get into the market to purchase a home for yourself over $500,000 and you do not have 10% to put down, you should probably consider doing that before the February 16, 2016 deadline. Most of our clients put down more than 10% as a down payment on a property, so this will not affect the majority of you.
What if I want to buy an investment property?
If you are buying an investment property, this doesn’t affect you as the minimum down payment is 20% for non-owner occupied properties. The market itself, if it does stabilize (we are predicting the housing prices increase will be steady but not as high as the past two years for 2016), it will be a good time to buy an investment property.
What if I have a specific question about how this affects my decision to buy or sell in 2016?
We would be happy to discuss any concerns or questions with you regarding this announcement or the 2016 housing market in the GTA. We live and breathe real estate and are happy to have minutes or hours worth of discussion on this topic. Please feel free to call Sandy or Rayissa.
Sandy Bodnar & Rayissa Palmer
Sutton Group Old Mill
4237 Dundas St West, Toronto ON M8X 1Y3