Praise and caution: Ottawa’s 'bold' new mortgage rules

Ottawa’s new mortgage rules set to take effect at the end of the year are drawing both praise, and caution in southern Ontario.

Last month, the federal government announced it was making the "boldest mortgage reforms in a decade" aimed squarely at young people trying to buy a home.

"I would not want to be a first-time homebuyer at this moment in time," said Fred Godbolt, a financial advisor with GC Financial Solutions Group Inc. based in Exeter, Ont.

The changes will see the government insure larger mortgages, increasing the price cap from $1 million to $1.5 million and expand eligibility for 30-year mortgages to all first-time homebuyers as well as those buying new builds. In a news release, the government identifies high mortgage payments as a barrier to homeownership “especially for Millennials and Gen Z.”

The moves are somewhat concerning for Godbolt, who points to increased carrying costs as a potential budget buster for many looking to enter the market and preaches caution for those looking to buy.

"I don't think this increases affordability for lots of people," said Godbolt. "I think the problem is carrying the $1.5 million of mortgage, not the fact that you can pay it over 30 years versus 25 years."

The increased price cap is the first update since 2012 and Godbolt describes it as “keeping current” with market trends.

"There are markets where housing doesn't exist sort of under a million dollars," said Godbolt.

The new changes aren’t set to take effect until Dec. 15.

Cost caution

The Canada Mortgage and Housing Corporation (CMHC) earmarks “affordable” housing at 30 per cent of before tax income for a household budget, including the cost of utilities and any municipal services.

The average sale price of a home in Windsor-Essex in September was $579,290. According to the Canadian Mortgage App, that purchase amortized over 25 years at an initial 4.49 per cent would put the mortgage payment at $2,548.44 a month.

A CMHC report in 2021 puts the average household income before taxes in Windsor at $102,300.

"It certainly helps. It helps from a cashflow perspective," said Godbolt. "Obviously, on a longer-term basis, you pay more interest."

Approach praise

Ottawa’s announced changes are receiving praise from the Windsor-Essex County Association of Realtors (WECAR) for its measures targeting first-time buyers struggling to secure a home.

“We applaud these changes because, at this moment, this is the best I think the government can do,” said Maggie Chen, the president of WECAR. “We cannot crash the market. Absolutely not.”

Chen points to monthly mortgage payment relief as an important step to making home ownership more attainable for more people.

She says it doesn’t only improve the monthly budget picture but can improve financing ratios to fund a home purchase.

Chen paints it as a question of financial priorities.

“Pay more interest throughout the whole 30 years, correct; but you can become a homeowner and start to build your equity,” said Chen. “It depends on what priority you take.”

Bonanza bounceback

Godbolt noted a criticism of the changes is that they will feed further demand for housing and won’t bring prices down.

"This could in fact create more demand and that in fact may make prices go back up," said Godbolt. "What we really need is more affordability here. We need more supply."

In recent months, home sales in Windsor-Essex have been stagnant and the market has seen little fluctuation. Sales were down for four straight months beginning in March before July’s figures matched year-over-year sales numbers and the number of homes sold climbed a meagre 0.22 per cent year-over-year in August.

“The market has been staying very quiet and flat as a pancake,” said Chen.

September has seen some signs of increased activity with 422 homes sold, representing an 8.48 per cent sales climb from the same time last year while listings have climbed 23.52 per cent over that same period.

Chen doesn’t expect the changes coming later this year to lead to a “supercharged” housing market, the likes of which were seen during the pandemic where housing prices and activity soared.