New mortgage rules aim to boost homeownership in high-cost markets

• Federal government raises the insured mortgage cap to $1.5 million and extends 30-year amortization periods.
• Changes take effect December 15 and aim to improve housing affordability - especially for first-time buyers.
• Critics warn the measures might increase demand and push home prices higher.

In the news: The federal government is increasing the insured mortgage cap to $1.5 million and expanding access to 30-year amortization periods. The measures, announced by Finance Minister Chrystia Freeland, aim to tackle Canada's housing affordability crisis and will take effect on December 15.

Why it matters: The changes are designed to make homeownership more accessible, especially for first-time buyers and those purchasing newly built homes. Previously, the 30-year amortization was limited to first-time buyers of newly built homes.

• The new rules are intended to make insurance available for higher-value properties, particularly in expensive markets like Toronto and Vancouver.

Some context: The previous insured mortgage cap of $1 million has been criticized for excluding many buyers in high-cost markets. With Canada's GDP up 65% since the cap was set in 2012, the measure had become outdated.

• Average home prices in cities like Toronto and Vancouver exceed $1 million, making the old cap a significant barrier.

The impact: The updated cap is expected to help young Canadians and first-time buyers by offering better financial options. It could also spur homebuilding activity, though high property prices remain a challenge.

• Builders may be encouraged to start new projects due to increased demand.
• There are concerns that longer amortizations could lead to market overheating.

Mixed reactions: Industry experts have varied opinions on the changes. Some believe they will improve market access for first-time buyers, while others warn they might stimulate demand and push prices higher.

• Critics argue the policy is a short-term fix that doesn't address underlying issues. "What we'll see from these changes is an already massive demand side becoming more chaotic on the fringes and filling the new void that mortgage insurance will open up between $1 million and $1.5 million," said Benjamin Sammut, a private mortgage consultant and owner of Sammut Consulting Services.
• Others see it as a positive step but suggest time-limited amortizations to avoid future market overheating.

What's next: Monitoring the impact of these changes on housing affordability and homeownership rates will be crucial. Additional regulations or amendments may follow based on their effectiveness.

• The government has pledged to build four million homes by the end of the decade, but sluggish housing starts necessitate these changes to boost construction and home purchases. But Sammut and other professionals remain skeptical. "Unfortunately, much of housing policy today is designed to garner voter interest rather than address the current economic climate."