Trudeau loosens mortgage rules in bid to woo younger voters
The government will also allow mortgage default insurance on homes worth up to C$1.5 million, an increase from the current cap of C$1 million
PRIME Minister Justin Trudeau’s government will make 30-year mortgages available to all first-time buyers and to buyers of newly built homes as the embattled leader tries to win back the approval of younger Canadians.
The government will also begin allowing mortgage default insurance on homes worth up to C$1.5 million (S$1.42 million), an increase from the current cap of C$1 million. That means buyers can bid on more expensive homes even if they have less than a 20 per cent down payment – as long as they purchase insurance.
“We are now making the boldest mortgage reforms in decades to unlock homeownership for younger Canadians,” Minister of Finance Chrystia Freeland said in a news release. The moves will take effect on Dec 15.
Canada cracked down on lengthy mortgage amortisations during the 2008 global financial crisis. Until this year, buyers who required government-backed default insurance on their mortgages were limited to 25-year amortisations.
Trudeau and Freeland took a step toward loosening that rule in April, allowing 30-year amortisations on insured mortgages only for first-time buyers purchasing newly built homes.
Monday’s (Sep 16) announcement will significantly expand the pool of buyers who can access 30-year loans, which substantially lowers monthly payments. Insured first-time buyers represent roughly 20 per cent of the market in Canada, while new builds make up about 4 per cent, Freeland said.
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Freeland noted that the insured-mortgage cap hadn’t been adjusted since 2012. Housing prices in Canada have doubled since then, with the average price in August reaching C$1.1 million in Toronto and C$1.3 million in Vancouver.
The announcement raised questions about whether the moves would juice the housing market and saddle younger Canadians with more debt. The country’s households are the most indebted in the Group of Seven and over-investment in real estate has been blamed as a source of a persistent productivity crisis.
The government’s actions may mean interest rates will not need to fall as much to spark a housing market rebound, said Benjamin Reitzes, rates and macro strategist at Bank of Montreal.
“My bigger concern is that the market has calmed and behaved as well as policymakers could have hoped, and now we’re adding fuel,” he noted. “Canadian households have been responsibly de-leveraging driven by higher rates, and these changes will only incent increased debt burdens.”
In a June research paper, Desjardins economist Marc Desormeaux analysed the potential impact of extending mortgage amortisations in Canada. He concluded that while the policy change would immediately help those in a position to buy, the medium-term outcome would be an increase in home prices.
“Affordability would eventually become even worse than in the base case as initial gains are overcome by a more dramatic rise in home values,” he wrote.
At a news conference, Freeland pushed back on concerns that the policies would inflate housing prices. She said extending the amortisation period for new builds would help create more supply, and her government has also put forward other measures to boost homebuilding, including billions for municipalities to allow denser zoning and cut red tape.
“What this is all about is putting the dream of home ownership in reach for younger Canadians, giving first-time home buyers a leg up in the housing market,” she said.
At an interest rate of 5 per cent, amortising a mortgage over 30 years instead of 25 would reduce a homebuyer’s monthly payment by 8 per cent, but increase total interest paid by 24 per cent, according to Bloomberg calculations.
Canadian home sales data for August suggested a pickup in market activity after the central bank delivered back-to-back rate cuts in June and July.
New listings were up 1.1 per cent in August from a month earlier, and the total number of properties for sale at the end of August was 177,450, an increase of nearly 19 per cent from a year earlier.
Both Trudeau and Freeland have made housing a central plank of their economic messaging this year, pledging numerous programmes to boost construction and provide easier access to financing. But so far those moves have not improved Trudeau’s position in public opinion polling.
The country’s ruling Liberal Party lost a once-safe seat in a Montreal parliamentary constituency, preliminary results showed on Tuesday (Sep 17), a result likely to put more pressure on Trudeau to quit.
Elections Canada said that with 100 per cent of the votes counted in LaSalle-Emard-Verdun, Liberal candidate Laura Palestini had been beaten into second place by the separatist Bloc Quebecois candidate, Louis-Philippe Sauvé.
The result will put more focus on the political future of Trudeau, who has become increasingly unpopular after almost nine years in office. The Liberals are trailing badly in the polls to the right-of-centre Conservatives, who blame Trudeau for rising prices and a housing crisis.
Trudeau insists that he will lead the Liberals into an election that must be held by the end of October 2025, but some legislators have broken ranks to call for change at the top.
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