‘Modest’ impact from down payment change

Federal government move to 10 per cent down on homes over $500,000 aims to limit risk if property market implodes

Central 1 Credit Union chief economist Helmut Pastrick.

New federal rules requiring higher down payments for insured mortgages on homes worth $500,000 to $1 million are unlikely to trigger any dramatic cooling of Lower Mainland real estate markets, according to one analyst.

Central 1 Credit Union chief economist Helmut Pastrick said the practical effect of the change from a five to 10 per cent down payment requirement in that band is minimal because it applies only on the portion over $500,000.

It means a $600,000 home will require a $35,000 down payment instead of $30,000 to gain Canada Mortgage and Housing Corp. insurance, effective Feb. 15. A $900,000 home’s required down payment would rise from $45,000 to $65,000.

“In the higher cost markets such as Vancouver and Toronto it would have some impact,” Pastrick said. “Right now, I would classify it as modest.”

Homes priced over $1 million remain subject to a minimum 20 per cent down payment and the existing five per cent requirement is unchanged at $500,000 and under.

Pastrick said that may give home builders some impetus to try to price Vancouver area condos and suburban townhomes within that threshold.

The change limiting the mortgage exposure of some buyers is one of three adjustments unveiled by federal finance minister Bill Morneau that are aimed at reducing the risk of a taxpayer bailout if home prices implode in Canada’s hottest real estate markets.

Banks will also have to hold more capital to cover residential mortgages, which Pastrick said could put some upward pressure on rates, although that change does not kick in until 2017.

Pastrick said most buyers of homes in the affected price range likely don’t require insurance because they have enough existing equity.

It’s just the latest in a series of tightenings by the federal government since the 2008 financial crisis.

Pastrick noted that at one point CMHC-insured mortgages could be amortized over 40 years, but that got chopped back to 35 and then 25 years.

He predicts that for now, markets will continue to grind higher.

“Over time prices will continue to rise,” he said. “This won’t really have much of a dampening effect on housing prices in Vancouver.”

The Real Estate Board of Greater Vancouver reported a benchmark price of detached houses of $1.22 million in November, while attached units like townhouses were $536,000 and condos were $435,000. Those benchmark prices are much higher in and around Vancouver, and lower in eastern suburbs, such as Maple Ridge.

The prices have climbed 22 per cent over the past year in the case of detached houses, and 11 per cent for condos.

The biggest potential future risk to real estate markets is another global recession, Pastrick said.

Other changes that could affect real estate markets may be on the horizon, in response to concerns that foreign buyers are driving up prices.

The provincial government has suggested it may charge a higher property transfer tax on high end homes.

 

More reliance on Bank of Mom and Dad

First-time home buyers are the ones who are most likely to be affected by the down payment change.

And they will likely rely even more heavily on the “bank of Mom and Dad,” according to the Society of Notaries Public of B.C.

It cited a survey of its members showing about half of first-time buyers in Greater Vancouver get help, usually from parents, with their down payment.

For about 62 per cent of new buyers getting help, Mom and Dad put up less than a quarter of the down payment, but in more than a quarter of cases parents are paying up to half of the money down, and 11 per cent of the time they’re paying more than half.

In the Fraser Valley, the notaries estimate even more first-time buyers – 75 per cent – rely on parental help. In 56 per cent of those cases, parents covered less than a quarter of the down payment, while one third covered a quarter to half, and 11 per cent provided more than half.

Money to buy a home usually is given as a gift, but in a minority of cases parents go on title or a formal or informal loan is drawn up.

Just Posted

Come visit the cute little critters at Elizabeth’s Wildlife Center

Abbotsford centre holds annual open house on Aug. 24 and 25

Abbotsford Police ‘speed watchers’ are tops in province

Volunteers record highest increase in patrol hours in ICBC challenge

UPDATE: Abbotsford woman reported missing from Chilliwack has been found

Alexis Neill, 26, located safe and sound, police say

Event supports women’s centre that is at risk of having to move

Abbotsford women’s recovery program holds annual Victory Walk

Son of slain former Hells Angel is one of two men sentenced for crime spree

Pair’s 2017 series of robberies included convenience store in Abbotsford

VIDEO: Facebook rolls out tool to block off-Facebook data gathering

CEO Mark Zuckerberg announced the “clear history” feature more than a year ago

RCMP originally planned to arrest Meng Wanzhou on plane, defence lawyers say

The allegations have not been proven in court. Meng was arrested Dec. 1 at Vancouver airport at the behest of the U.S.

Bodies of two missing Surrey men found near Ashcroft

Ryan Provencher and Richard Scurr have been missing since July 17

Ethics commissioner ready to testify on Trudeau, SNC-Lavalin: NDP critic

A new poll suggests the report hasn’t so far hurt the Liberals’ chances of re-election this fall

Inflation hits Bank of Canada 2% target for second straight month

Prices showed strength in other areas, including an 18.9 per cent increase in the cost of fresh vegetables

VIDEO: Organization’s stolen wheelchair van recovered on backroad near Hope

Wheelchair accessible van is only transportation for some people in Hope area

Pregnant teachers fight to change WorkSafeBC compensation rules

Agency does not recognize risk to unborn babies when mother catches illness from work

Officials say 50 Oppenheimer Park residents have agreed to leave, as deadline looms

Residents have been told they must be gone by 6 p.m. on Aug. 21

Most Read