TORONTO, Dec 11 (Reuters) - Canada’s move to tighten mortgage rules and raise some fees on lenders will likely make it more expensive for consumers to borrow, but could boost one of the most vulnerable segments of the market - Toronto’s big supply of condominiums.
Realtors, mortgage brokers and economists said the move to raise the minimum down payment on expensive properties and boost fees for mortgage insurance may have little impact on Canada’s housing market as a whole, but puts cash-strapped consumers in Toronto and Vancouver in the cross-hairs.
The new measures will require buyers who need government-insured mortgages to make down payments of up to 7.5 percent on homes worth C$500,000 ($365,000) to C$1 million, up from the current 5 percent - a price point that targets entry-level homes in Canada’s two largest housing markets.
“Cash-poor buyers will be funneled into less expensive properties which, in Toronto, means the more affordable condominium market,” said Toronto real estate agent Steve Fudge.
“This isn’t necessarily a bad thing, as it creates a larger pool of buyers to support the exponentially larger supply of condominiums in Toronto. In fact ... it may help mitigate the potential oversupply of condominiums we collectively fear may be happening,” said Fudge.
But while condos in Vancouver and Toronto may become increasingly the default option for the lower end of the housing market, the higher costs are expected to push some would-be buyers out of the market altogether, economists said.
The Canadian Real Estate Association also warned that the government’s unexpected move could hurt markets like Calgary, already reeling from a prolonged slump in oil prices.
“These changes are just not very constructive,” said Chief Economist Gregory Klump. “More than a quarter of sales in Calgary are between C$500,000 and C$1 million, so that’s an example of a market that is going to be facing challenges due to today’s policy change that probably wasn’t intended.”
In addition to the higher minimum down payment, the Canada Mortgage and Housing Corp, a federal agency that provides insurance on mortgages, said Friday it is raising fees it charges banks and other lenders to provide guarantees under the government’s mortgage-securitization program.
“Lenders, when they incur higher costs, they typically pass them on to consumers because it’s a very tight margin business these days,” said Robert McLister, mortgage expert and founder of RateSpy.com.
McLister said he has heard the impact will raise mortgage rates by between five and 10 basis points, or as much as C$1,400 in extra interest over the life of a five-year mortgage. (Additional reporting by Leah Schnurr in Ottawa; Editing by James Dalgleish)