Ottawa hikes mortgage down payment requirement

Worried about the red-hot housing markets in Toronto and Vancouver, the federal government is hiking the minimum down payment required to buy a home for more than $500,000, Finance Minister Bill Morneau announced Friday

“We are looking at ways to ensure our market is stable and we want to make sure people are making the appropriate decision as they buy a new home,” Morneau said during a news conference in Ottawa.

“The federal government’s role is to set and maintain a framework that is equitable, stable, sustainable and protects Canadians and the economy from potential excess housing market volatility.”

The new regulations will come into effect on Feb. 15, 2016.

The measure will not affect people who already hold mortgages, said Morneau.

Under the new rules, anyone buying a home that costs $750,000 would have to pay a minimum down payment of $50,000: five per cent of $500,000, plus 10 per cent of $250,000.

Homes that cost more than $1 million are not affected by the changes, as they already require a 20 per cent down payment to qualify for mortgage loan insurance offered by Canada Mortgage and Housing Corporation, the federal housing authority.

“By targeting higher priced properties we’ll minimize the impact on many first-time home buyers and regional housing markets where activity is more moderate, while limiting risk and tax payer exposure to the elevated housing markets in Vancouver and in Toronto,” said Morneau.

Many economists warn that several consecutive years of record low interest rates have enticed new buyers into the housing market. And many of these new buyers would be adversely affected if interest rates were to start going up or if there were a significant correction in the housing market.

“The measure will also increase home owner equity, which plays a key role in maintaining a stable and secure housing market and economy over the long term,” Morneau said.