Will the New Mortgage Rules Slow Down Vancouver’s Market?
January 16, 2016
The federal government recently announced that it was introducing mortgage changes that will increase downpayment requirements (on properties priced over $500,000). In our opinion, this measure will not cool the Vancouver real estate market…but it may have some unintended consequences.
Currently, a buyer can purchase a home with 5% down up to $1,000,000. Beyond $1,000,000, the buyer would need to be able to put at least 20% down because mortgage insurance isn’t available above that amount…this new measure will affect only properties priced from $500,000 and $1,000,000.
The new measure requires buyers from $500,000 – $1,000,000 to step up their downpayment to 10%. It applies only to the portion of the purchase price between $500,000 and $1,000,000. Thus, if you were to purchase a property for $750,000 your downpayment would be a blend of 5% and 10% and work out to 7.5% or $50,000 (it results in an extra $5,000 downpayment for every $100,000 of mortgage from $500,000 to $1,000,000).
Importantly, this measure will not take affect immediately. The change will be implemented as of February 15th, 2016. Many are predicting that our already heated market will get a boost in the early spring as a result as sellers try and sneak their sales in before the change takes place. This may be to the benefit of buyers in affected price bands as more inventory will likely come on to the market (lack of inventory has been a real issue in 2015).
We do not believe this change will slow down the Vancouver real estate market. Our market is not driven from the bottom up, but the top down. It is people with very deep pockets at the high-end of the market that have been driving prices northward.
An important distinction is that the $500,000 – $1,000,000 price range may be luxurious in other markets, but it is not in Vancouver. This is the entry level price point for many property types.
We believe that the result of this change in the City of Vancouver will be to make the market even more expensive for those that can least afford it…first time buyers. They are the ones that are most likely to buy in the $500,000 – $1,000,000 price range and they are also the ones that tend to put the least amount of money down. These buyers will be losing out to those with deeper pockets.
Bottom line? The Vancouver real estate market will not miss a beat due to these changes to the mortgage regulations…it’ll likely spike the market at the beginning of 2016 and end up making it more expensive for the most vulnerable buyers.