New Down Payment Rule – How does it impact you?

Last week, the Federal Government announced that the minimum down payment for homes priced over $500,000 will increase. Currently, the minimum down payment for a home is 5% up to a purchase price of $1,000,000. With the announcement, effective February 15, 2016, the minimum down payment will remain 5% for purchases up to $500,000, but will require 10% on the portion of the purchase price between $500,000 and $1 million.

Under the current rules, a home costing $600,000 requires a minimum down payment of $30,000 (5% of the purchase price); effective February 15 that would increase to $35,000 – 5% of the first $500,000 ($30,000) plus 10% of the balance of $100,000 ($10,000, on the amount above $500,000).

Buyers shopping for homes below the $500,000, or above the $1,000,000 mark will be unaffected by the new rules.

How does this impact you and the market? First, by increasing down payment requirements for properties greater than $500,000 the Minister of Finance, took the position that, “The actions taken … prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions.”

The intended ‘targets’ were likely Toronto and Vancouver, but as CIBC deputy chief economist, Benjamin Tal wrote in a report shortly after the government’s announcement, the consequences may be felt more in cities such as Calgary, Victoria, Edmonton and Hamilton as those cities have a higher percentage of high ratio sales between $500,000 to $1M. That said, the overall impact is still expected to be less than 3.5% of the market.

Having looked at my own files over the last year, only one purchase would have been affected. It would have meant an increase in down payment of $3,000. They had a purchase of $560,000 with a down payment of $28,000, with the change the minimum down payment would increase to $31,000. The balance of purchases over $500,000 that I facilitated had more than the required down payment for under the new rule.

Here is a breakdown of the impact of the change across different price points:

Co-written with Martin Breeze, Mortgage Broker, TMG The Mortgage Group