Higher minimum down payment coming.. relax, it’s just political posturing.

As expected, and as I had predicted back on October 21st, the Federal govt made their first major announcement last week.  All new govts want to make a major announcement early… It shows they are doing something….So, here it is.

The new Federal Minister of Finance, Bill Morneau, broke the news on Friday.   A change to the minimum down payment rules.   That’s right, the minimum down payment to buy a house is going up…. well, sort of… Okay, that’s the headline … but now, keep reading for the real facts.   Here’s a link to The Star’s article by Susan Pigg quoting yours truly….

At present, you can buy a house with as little as 5% down..  So, a $700,000 house purchase only requires a minimum $35,000 down payment, a $900,000 purchase would only requires a minimum $45,000 down payment,    As of February 15th 2016, the new rules will increase the amount of down payment only on the mortgage portion ABOVE $500,000 to 10%.

So here’s how that looks.. A $700,000 house purchase will require a $45,000 down payment and a $900,000 purchase will require a $65,000 down payment.   Yup, that’s it.  That’s the big change.  (yawn.. oh, sorry.. I was falling asleep myself).

Folks, it’s called political posturing… This announcement was made for the purpose of creating an illusion…. an illusion that our NEW Federal govt is doing something… the illusion that they are taking action. But this will have little to no effect on slowing the housing market.  In fact, we could see a spike in house sales and prices…. I’ll explain.

Over the past 7 years, the govt has made several mortgage rule changes..   After each and every change, we’ve seen a spike in house sales and in house prices.  Hard to explain why, except we think it’s because consumers are just reading the headlines… so they panic and take action to ensure they aren’t shut out from owning a home.

Watch for houses in the $500,000 range to have lost of activity as buyers that were only putting 5% down hurry to get in before the change.

Oh, one more thing…  I’ve helped close to 10,000 clients with their mortgage financing in my career…  Do you know how many put just a 5% down payment on house purchases over $600,000?    Yup, almost none.  I can count the number of clients on just one hand.   It’s fair for me to say, this announcement will have almost ZERO affect on consumers.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca