When Finance Minister Jim Flaherty announced the changes to amortization periods on insured mortgages, and the amount that can be borrowed on HELOCs, he also announced that mortgage insurance would no longer be available on homes priced at $1 million or more. But with homes in that category taking up so little of the marketplace, what exactly is the point of this last rule? Experts say it’s all a matter of politics and psychology.
The CMHC report shows that in fact, the amount of insurance they offer on homes in that price range only accounts for 5 per cent of all of their loans. And even those loans range from $550,000 to over $1 million – their highest bracket, and much of that range will still be eligible for insurance.
None of that takes into account the 10 per cent of all mortgage loans in Canada that are insured by Genworth MI. But they report that in Vancouver, one of Canada’s hottest markets, the average price of a home that they provide insurance for is only $453,000. That’s fairly low, considering that the average price of a home in that city is $792,000.
These stats also don’t take into account that only 5.7 per cent of Toronto mortgages – the area in which Mr. Flaherty said he was most concerned – were in the $1 million range within the first five months of 2012, according to the Toronto Real Estate Board.
So what’s the point of eliminating mortgage insurance on these luxury properties?
It’s more of a message than it is about legislation, says many experts, and a way to change the way that Canadians think.
Calum Ross, a mortgage planner in Toronto says, “This move is mitigating future risk and it’s sending a political message. I think it will have not only a financial impact, but also a political and psychological impact on people.”
And Ross McCredie, CEO of Sotheby’s International Realty Canada, echoes his sentiments, saying that it’s really more of a wake-up call than it is a matter of trying to tame the housing market. “We still think Canadians are incredibly conservative when it comes to real estate for the most part,” he says. “What they’re doing will shake people’s confidence and make them say ‘oh jeez, there’s a problem out there.'”
However, there is more to this new rule than just getting people to change their perspective. With home prices climbing, especially in areas such as Toronto, the amount of million-dollar homes on the market could soon be increasing at a very steady pace. And if that were to happen, and the new rule wasn’t in place, the amount of insurance on luxury homes – and the risk to taxpayers – could be much greater.