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DoF May Soon Mandate Higher Down Payments

Higher downpaymentsBy the end of January, the Department of Finance may recommend raising the minimum down payment to 10%. That’s what I’m hearing from a high-level lender source connected with the DoF, who declined to be identified.

Policy-makers are reportedly considering a graduated scale based on either the home value or mortgage amount—something like this:

  • $0 to $500,000 requires at least 5% down
  • $501,000 to $700,000 requires at least 7% down
  • Over $700,000 requires 10% down

These numbers are purely speculative, but such a methodology would do two things:

  1. Insulate first-time buyers (who typically have mortgages in the high $200k or low $300k range), and
  2. Shield smaller markets that haven’t seen the stratospheric home prices of Toronto and Vancouver.

Research from Mortgage Professionals Canada suggests up to 115,000 recent buyers might not be able to afford a 10% down payment, forcing them to defer purchases for potentially years. Studies like that probably factored into the DoF considering a graduated scale. Kudos to DoF policy-makers, by the way, if they do in fact avoid an across-the-board 10% down payment requirement and spare young buyers and weaker housing markets.

The DoF will presumably make its recommendation to Minister of Finance Bill Morneau. Morneau would then need to weigh the political and economic implications of this move. Our bet is that he’d side with senior policy-makers who are concerned about Ottawa’s exposure to the housing market, and put this into regulation sometime next year.

We’re currently awaiting comment from the Finance Department, but there’s likely not much they can say ahead of a formal public announcement. Sources say that if they do implement higher down payment rules, it would not require a public comment period and could be done relatively quickly.