New mortgage rules from the federal government taking effect Thursday won't “move the needle,” according to some experts in the housing industry.
As of Aug. 1, first-time homebuyers will have 30 years to pay off their insured mortgage, which is required when a down payment is less than 20 per cent of the home price. However, the policy will only apply to newly built homes.
"Honestly, it's not going to move the needle," said Frank Napolitano of Mortgage Brokers Ottawa in an interview with CTV News. “I think it'll help a few people, but not very many at this point.”
On a $500,000 mortgage, Napolitano said, a 30-year amortization period could help lower monthly payments by $250, but he doesn't think it's significant enough.
“We're talking about interest rates that are still pretty elevated, and young Canadians that are struggling to come up with a down payment without the bank of mom and dad,” Napolitano said.
Under the current rules, the longest allowable amortization — the time a homeowner has to repay their mortgage — is 25 years.
The Liberal government announced the change in April's federal budget as part of a suite of measures to address Canada’s housing crisis. Finance Minister Chrystia Freeland touted the policy's benefits in Toronto earlier this week.
"This is just one of several measures that our government is taking to help younger Canadians save for that first down payment and afford a home of their own,” Freeland said at a news conference on Monday.
According to the Canada Mortgage and Housing Corp. (CMHC), in the last half of 2023, only 17 per cent of mortgages in Canada were insured. The Bank of Canada reports first-time homebuyers accounted for less than half — 44 per cent — of home purchases in the first quarter of this year.
The federal government considers a first-time homebuyer to be anyone who has never purchased a home, who has not owned their principal place of residence for the last four years, or who has recently experienced the breakdown of a marriage or common-law partnership.
Still, there are questions around whether first-time homebuyers will want to buy a new build.
“With all the length of time that is often involved, if one wants to buy a new condo or pre-construction condo, it can take years for that, so it's probably not for everybody,” said Robert Hogue, assistant chief economist for RBC.
Hogue doesn’t believe the changes to amortization are a “silver bullet” to fix the housing crisis, but rather an incremental measure as part of a suite of housing measures, especially since the new changes will not apply to properties worth more than $1 million.
“This is a limiting factor in the high expensive markets like Toronto, (and) Vancouver,” Hogue said.
But Hogue also said extending the amortization period for new builds will help increase the housing supply.
“In our view, it really lies at the core of the issue,” he said. “We need to grow our supply of homes in Canada, given that demand is so large.”
In a statement in April following the federal government’s announcement of the changes, the CEO of the Canadian Home Builders' Association, Kevin Lee, called the policy a "game changer," adding “this measure will also go a long way to enable our sector to respond to the government's goal of getting 5.8 million new homes built over the next decade.”
But one Ottawa-area home builder is reporting just two new sales as a result of the program.
"It's not enough,” said Valecraft Homes owner Frank Nieuwkoop of the longer amortization period. “I think the government needs to do more."
Nieuwkoop called the new measure a first step, but he would like to see changes to the so-called stress test, which is the threshold that determines if someone will be able to pay for their mortgage if interest rates rise.
“Rather than forcing people to qualify that stress test, if they qualify at a certain amount, make them lock it in for x number of years,” Nieuwkoop said. “If they break that well, then they have to pay that penalty.”
The change to the amortization period is just one of a number of measures the federal government has introduced to address the housing crisis.
As of April 16, the amount first-time homebuyers are able to withdraw from their RRSP increased from $35,000 to $60,000. The federal government also launched the First Home Savings Account last year, which Freeland said has seen 750,000 Canadians sign up.
Earlier this year, the federal government unveiled its plan to build nearly four million homes by 2031. The CMHC has previously said Canada needs to build 5.8 million homes by 2030 to restore housing affordability.
