The Canadian housing market, and the Canadian mortgage market, is a problem that just about all economists and analysts in Canada have been trying to fix. Homes are overvalued, there are too many of them on the market, and we’re consuming and borrowing at a much faster clip than the federal government would like. All of these are problems that need solutions and it seems like everyone’s got one. Yesterday the Globe and Mail pitched their own – raising the minimum down payment to 7% instead of where it sits currently at 5%.
This is the latest call of action to Finance Minister Jim Flaherty, and it’s something that he’s considered in the recent past. Flaherty definitely isn’t scared to make changes to mortgage rules; he’s done so three times in the past year including tightening the lending requirements on second mortgages such as HELOCs at the beginning of last year, as well as shortening amortization periods. Now he says, he’ll leave the minimum down payment alone for the time being.
The Globe believes that raising the minimum down payment would protect that last Toronto condo buyer that Mr. Flaherty expressed concern over just last week. The argument the paper gives is that by raising the down payment, Canadians who can’t afford their mortgage (and they would be weeded out with the slight 2% jump in down payment,) simply won’t be able to take them on. And then there will be no need to worry about that last buyer. According to the Globe, “Raising the minimum to say, 7 per cent, would seem to be a measured, prudent way for Ottawa to limit the number of naive new borrowers who could be left holding the bag for a lifetime because greedy condo builders couldn’t rein themselves in.”
But the Finance Minister won’t. If he’s so worried about that last Toronto condo buyer, why is that? While he did seem to seriously consider the option (and any others that could bring our housing market back under control,) it was advice from Canada’s group of mortgage brokers, the Canadian Association of Accredited Mortgage Professionals, as well as the Canadian Real Estate Association, that warned him against doing so. These two groups warned the Finance Minister that raising the down payment would force too many first-time buyers out of the market, and it could also cost the economy a number of jobs.
What do you think? Would raising the minimum for a down payment help Canadians, or hurt us?
