Down payment hike will only squeeze out more first-time home buyers, a top mortgage insurer warns

By Garry Marr -June 13, 2016-Financial Post

The head of Canada’s second-largest mortgage-default insurer is warning against increasing the minimum down payment for buying a home.

Andrew Charles, chief executive of Canada Guaranty, whose owners include the Ontario Teachers’ Pension Plan, says a full roll out of the minimum down payment for government-backed insured mortgages to 10 per cent from five per cent will heavily impact first-time buyers while failing to alleviate some of the price stresses in the Vancouver and Toronto housing markets.

“The first-time home buyer market in Canada represents approximately 30 per cent of the entire housing market,” Charles said. “The insured segment of the market has a $1-million cap in terms of maximum. We take the view that increasing, or further penalizing, the first-time home buyer does zero or has minimal impact on price valuations in two specific markets.”

Ottawa increased the minimum down payment for buying a home in February to 10 per cent from five per cent for the portion of the selling price over $500,000. The federal government, which backstops companies like Canada Guaranty and Canada Mortgage and Housing Corp., a Crown corporation, that insure banks for mortgage losses, capped maximum home coverage at $1-million while the Tories were in power.

Pressure is building for the federal government to rein in housing markets in Vancouver and Toronto, which recorded year-over-year price increases of about 30 per cent and 16 per cent, respectively, in May.

The chief executive of the Bank of Nova Scotia, Brian Porter, suggested last week he was concerned about the state of the market in those two cities and his financial institution “took our foot off the gas” in the last couple of quarters, slowing mortgage growth.

Others, including the Organization for Economic Co-operation and Development, have warned about the risks rising debt and elevated housing prices in Canada.

But while Canada’s finance minister Bill Morneau did indicate his government is watching the housing market closely and is ready to take a “deep dive” into what is causing imbalances, it doesn’t appears the Liberals are set to announce more changes in the short-term.

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