Market Commentary - Dec 15, 2015
The federal government is taking three more steps along the road to reducing taxpayer exposure to potential risks in the housing market.
The finance minister's announcement that bigger down payments will be needed for homes costing between $500,000 and $1 million got the most attention but it isn't the most significant change.
The down payment tweak is seen as an effort to cool the markets in Vancouver and Toronto. The bigger changes come in new requirements being put in place by OSFI, the country's top banking regulator, and CMHC. These will add to the cost of financing a home, regardless of the price.
OSFI is telling banks they will have to put more money aside in case mortgage loans go bad. That could tighten the money supply for mortgages or dampen the enthusiasm for mortgage lending which would, in turn, add to the cost. CMHC is increasing the fees it charges for its securitization programs.
By some estimates the OSFI and CMHC changes could add as much as 10 bps to the cost of borrowing. For a well-qualified home buyer with a $300,000 mortgage that could amount to another $1,400 in interest over five years.