The Liberal government recently announced a plan to allow first-time homebuyers to stretch their mortgage amortizations to 30 years in an effort to improve affordability in Canada’s housing market. This change, which takes effect on August 1, would give Canadians a longer time to pay down their mortgage, ultimately reducing monthly carrying costs on the loan. However, BMO economist Robert Kavcic believes that this policy shift will only impact a small segment of the market, as first-time homebuyers make up less than half of all real estate transactions and insured mortgages only make up around 15 percent of transactions.
Mortgages are insured when buyers put down less than 20 percent of the home’s purchase price upfront or if the property’s value exceeds a million dollars. This means that the policy change may not benefit all potential homebuyers, especially in Canada’s most expensive housing markets like Toronto and Vancouver. Kavcic suggests that the policy could lead to a shift in buyer demand towards new builds, but the overall market impact is expected to be limited. He also cautions that juicing demand in a market already struggling with excess demand may not be the right solution.
The Canadian Home Builders’ Association praised the Liberal government’s policy shift, as it is expected to stimulate building in the housing sector. In addition to the changes in mortgage amortizations, Finance Minister Chrystia Freeland also announced new rules for first-time buyers making withdrawals from their registered retirement savings plans through the Home Buyers’ Plan. Buyers will now be able to withdraw up to $60,000 towards the purchase of their first home, an increase from $35,000, and will have a total of five years instead of two to start repaying the withdrawal into their RRSP.
Overall, the Liberal government’s plan to allow first-time homebuyers to stretch their mortgage amortizations to 30 years is intended to improve affordability in Canada’s housing market. However, the actual impact of this policy shift is expected to be limited, as it may only benefit a small segment of the market. While the change could lead to a shift in buyer demand towards new builds, it may not be the ideal solution for a market already struggling with excess demand. The policy was praised by the Canadian Home Builders’ Association, as it is expected to stimulate building in the housing sector. Additionally, new rules for first-time buyers making withdrawals from their registered retirement savings plans were also announced, allowing buyers to withdraw up to $60,000 towards their first home purchase.
