Nearly half (45%) of Canadians reported being very concerned about their ability to afford housing because of rising housing costs or rising rent. In addition, about one-third of Canadians (35%) reported that their household experienced difficulty paying for its basic needs during the past 12 months (e.g., transportation, housing, food).
The challenge of homeownership in Canada has become increasingly prominent in recent years. Particularly the younger generations are now discouraged from seeking homeownership because of increasing home prices and high mortgage rates that limit many Canadians’ entry into the housing market.
However, recent reforms to the rules on mortgages by the Canadian government have the potential to address some of these barriers for as many as possible to open up the doors of homeownership. These reforms comprise part of an even broader initiative by the government towards making housing much more accessible and affordable for first-time buyers.
New Mortgage Changes: What’s Different?
Canada’s federal government announced new mortgage reforms that will take effect in August and September 2024. There is a potential for new opportunities for Canadians, and many people will be relieved of some of that financial burden. Here are the changes:
1. Increase in Insured Mortgage Cap
The huge hike of the insured mortgage cap which is to be raised from $1 million to $1.5 million, effective 15 December 2024 may form one of the most prominent changes. This coincides with a rising home price in many Canadian cities, especially in Toronto, Vancouver, and other smaller centres. Cutting that cap from $1.5 million to $1 million will mean that more Canadians can afford a mortgage with a down payment of less than 20%, especially where housing costs are very high. It makes no sense to update a policy that was last amended in 2012.
This will increase the pool of more individuals and families covered with mortgage insurance that, in turn, will lower their up-front costs for owning a home, thereby making it feasible. The government also reflects the current reality of the housing market because, during the last decade, the price of homes increased tremendously.
2. 30-Year Mortgage Amortizations
An important addition is the availability of 30-year mortgage amortization for homebuyers. From August 1, 2024, this is now available to first-time homebuyers for the purchase of new homes. From December 15, 2024, it becomes available to all first-time buyers and people buying new homes, including condominiums. The benefits of longer amortization periods by these changes include lower monthly repayments.
Longer amortizations do make for lesser monthly payments. And that, in turn, could be a difference between making people able to afford a mortgage and them not being able to. So this would be especially beneficial for more younger or many Canadians making the ability to enter into homeownership without having the burdens of rather heavy monthly payments. This aligns with the government’s greater plan for how to address Canada’s housing deficit through higher demand for new builds.
3. Strengthening the Canadian Mortgage Charter
Finally, another component is the Canadian Mortgage Charter in Budget 2024. The Charter has made it possible for all insured mortgage holders to switch lenders at renewal without having to go through another mortgage stress test. This shift will make the process of selecting better mortgage deals easy for homebuyers to shop around, thus encouraging increased competition from the lenders.
With a wide range of options and the option of securing better rates, Canadians can lower their mortgage costs and access better financial products upon renewal. This is a very important stride in enhancing the flexibility of Canadians in financial matters related to mortgages.
The Intent Behind These Changes
- Response to Housing Crisis: Reforms are a straight response to the increasing housing price issue in Canada and the financial issues for the younger generation, such as the Millennials and Gen Z, who struggle with high housing prices and heavy down payments.
- Support for First-Time Homebuyers: Reforms have been planned to make homeownership more affordable, especially for the first-time homebuyer, thereby simplifying economic burdens for the first-time homebuyer.
- Increased Mortgage Cap: CMHC is increasing the insured mortgage cap from $1 million to $1.5 million, effective December 15, 2024. The increase intends to help more Canadians qualify for mortgages with a down payment below 20%, reflecting the reality in the current market.
- Extended 30-Year Amortization: Effective December 15, 2024, the government will expand the eligibility for 30-year mortgage amortizations to all first-time homebuyers and all buyers of new builds. The goal is that this will lower their monthly mortgage payments and, correspondingly, make homeownership more affordable.
- Focus on New Builds: The reforms drive demand for new, including condominiums, to fill the housing supply gap. This is likely to motivate builders to increase new unit construction to reverse the persistent affordability crisis.
- Broader Housing Strategy: This reform supports a wider federal push to add nearly 4 million new units to the housing stock and address the affordability crisis nationwide.
A More Competitive Mortgage Market
These amendments to the strengthened Canadian Mortgage Charter are intended to enhance the overall competitiveness of the mortgage market. Removal of stress testing on homeowners wishing to switch lenders will reduce barriers to switching and may allow for increased competition between financial institutions, translating to better deals for consumers–thus helping homeowners in the country.
The Future Impact of These Reforms
These changes are anticipated to have far-reaching implications for the housing market and the landowners in Canada in the future. The changes will be likely to:
- Increase Homeownership Rates
New policies implemented by the government, such as extending the amortization period for mortgages, may make it easier for first-time buyers to qualify for a mortgage, which may increase the homeownership rate, particularly among younger populations. This reduced monthly mortgage payment would also make it more possible for Canadians to buy homes without potentially affecting their financial state of being. - Address the Housing Supply Issue
Encouraging the Purchase of New Builds The new build housing supply crisis might be another place where the government should pour in efforts. Introducing incentives for buyers to buy newly built homes means more construction projects. Therefore, this will add up to the increased building stock thereby putting some relief on the strained housing market, particularly in big cities. - Promote Greater Mortgage Flexibility
The flexibility to switch lenders at renewal without undergoing a stress test will make homeowners more financially flexible, encouraging more people to shop around for better mortgage rates, which in turn could result in lower costs for many homeowners. With increased competition among lenders, rates may drop, and mortgages become more affordable for an even greater number of Canadians. - Boost the Economy
Without overstating the importance of the housing market in Canada’s economy, rising homeownership will likely have broad beneficial impacts on the economy. With ever more Canadians entering homeownership, demand for construction, home improvement services, and the like will increase with the potential to generate more jobs and encourage economic growth. Higher homeownership also should lead to increased financial security for many families.
Conclusion
The reforms announced by the government are indeed a giant leap toward making homeownership accessible and affordable to Canadians, especially for the Millennials and Gen Z. Changes in reforms like an increase in the cap on insured mortgages, an extension of the amortization period up to 30 years, and strengthening the charter of the Canadian Mortgage help bring down the financial burden on homebuyers and make more Canadians enter the housing market.
These reforms also seek to calm the supply problem in housing by encouraging more people to buy new builds, which will help to sustain higher construction and eventually relieve the shortage in housing. In addition, there will be greater flexibility on mortgages, and the overall competitiveness of the mortgage market will be improved to deliver many more benefits to the homeowners of Canada.
These are worthwhile reforms and a part of a much more comprehensive strategy, which should make home ownership far more plausible and translate into more people in Canada taking the benefits of owning a home. Everything, after all, looks a lot rosier for future would-be homebuyers: now, with these changes in effect, a brighter, new future opens for the Canadian housing market.