Insurer CEO on Raising Down Payments

Andy CharlesI had a chat with Canada Guaranty CEO Andy Charles today. Like most industry leaders, he’s concerned with maintaining stability in Canada’s high-value housing markets.

As a mortgage default insurer, Charles knows a thing or two about risk mitigation. So we asked him for his take on raising minimum down payments in order to create a risk buffer and slow real estate valuations. He made three points of note:

  1. Regulatory changes over the last several years have made the first-time homebuyer a modest player in the overall housing market:“The changes made to the high-ratio mortgages (first-time homebuyers) the past several years (reduced amortizations, debt servicing restrictions, etc.) have served to significantly reduce the size of the first-time homebuyer segment. It now represents just 30% of Canada’s housing market with the significant majority of home financing utilizing conventional mortgages.”
  2. Increasing the minimum down payment would materially hurt Canada’s smaller urban housing markets:“Raising the minimum down payment to 10% would have the unintended consequence of negatively impacting housing markets in almost all other areas of the country. Home prices are soft and either flat or moderately decreasing in almost every city in Canada other than Toronto/Hamilton and Vancouver/Victoria. Housing markets and first-time homebuyers in Montreal, Halifax, Calgary, Edmonton, Winnipeg, Regina, and Saskatoon, not to mention other smaller cities, would very likely experience negative economic impacts due to increasing the minimum down payment at a national level.”
  3. GTA/GVA price increases are not being driven by the first-time homebuyer:“The large increases in single-family home prices in the GTA/GVA markets are not being driven by the first-time homebuyer with a 5% down payment. The 5% down payment segment of borrowers are generally not purchasing single-family dwellings in the GTA and GVA markets, as a very significant portion of these homes are priced above the $1 million value restriction for high-ratio purchases. Raising the minimum down payment in these markets would have very little, if any, impact on the trajectory of GVA/GTA single-family house prices in the foreseeable future. The average mortgage size of the first-time homebuyer is approximately $300,000.”

Charles added in closing:

“While I share the concerns regarding these specific markets, we take the view that raising the minimum down payment will penalize the first-time homebuyer, risk dampening already soft housing markets in most of the country, and will do little to help achieve the desired public policy of moderating the price growth in the GTA and GVA markets.”

Charles is one of an increasing number of industry leaders publicly weighing in on mortgage policy as of late.


  1. It would be nice if the follow-up “so what’s your suggested solution to these perceived problems?” was asked. Then we would know more about the thoughts of various industry players, and whether they believe that such perceived problems should be actively leaned against, left alone, or aren’t really problems at all. As it is, we usually get a variation on “oh Dear Lord don’t do THAT, here’s all the unintended consequences…” Food for thought, but only half of the answer that I want to hear.

    1. No further “solutions” are necessary for insured mortgages under $1 million. That segment is not the problem. The bubble is with homes over $1 million, mainly in two cities. I doubt any insurer would advocate more restrictive lending in the sub $1M market.

      1. I think the very fact that no “solutions” to “perceived” problems are on offer tells you all you need to know.

        Hot real estate markets do not demand external remediation, despite the incoherent bleatings of the whiners and conspiracy theorists who believe they are being priced out of the market by some mysterious foreign scourge.

        The fact of the matter is that even if the market dropped by 20 or 30% in T.O. and Van, the whiners would still not be satisfied.

        P.S. The solution to high prices is high prices.

        1. I don’t see the big deal with high prices so long as the market is stable. We should be happy that 7 out of 10 Canadians are homeowners seeing their equity and retirement nest eggs increase. If 2 out of 10 Canadians can’t buy a house where they want to and need to commute, that is a tradeoff we must live with.

        2. “Hot real estate markets do not demand external remediation”.

          Interesting comment, since one could argue that it was/ is government intervention that caused this hot market in the first place: 0/40, CMHC, tax-free withdrawal from RSP, first-time home buyers grants, capital gains exemption on primary residents, etc. etc. Not to mention other factors like falling interest rates.

          Bottom line is that the housing market in Canada is not a free market and the government has an obligation to fix imbalances if they present a risk to the Canadian economy.

          I don’t see how a young person today can be called a “whiner” when their only short-coming is being born 10 years too late to participate in the housing party.

          If/ when the market corrects, and it usually does when it gets ahead of itself, the market has shown that it can take a decade or more to recoup those losses. If that happens, I wonder if you will be calling on government intervention to save your “equity”?

        3. Would-be buyer:

          I think you are forgetting something in your statement that, “one could argue that it was/ is government intervention that caused this hot market in the first place.”

          Do you think maybe a growing population, immigration, rising incomes and supply constraints might have anything to do with housing values?

          Obviously government intervention is a minor factor in comparison. If it wasn’t then regulator’s long list of mortgage restrictions would have slowed the market by now.

          If home prices are a risk then it is the government’s obligation to address the biggest causes of that risk, and it sure as hell isn’t easy lending.

        4. Finman:

          “Do you think maybe a growing population, immigration, rising incomes and supply constraints might have anything to do with housing values”

          Growing population? The largest population cohort in history, the baby boomers, will die over the next 20 years. In the interim, there aren’t enough workers to pay for the baby boomer retirement social payments, so our young workers will be increasingly taxed. This doesn’t bode well for young people today. As boomers retire, there could be a tsunami of real estate hitting the market over the next 20 years since 60% of boomers don’t have pensions and may have no choice but to sell to fund their retirement (there goes my inheritance). Who will buy their homes? -Immigrants?

          Immigration? Immigrants earn less than Canadian-born residents.

          Rising incomes? Incomes have not risen on an inflation-adjusted basis for 20 years. Ouch. Consumers are only able to pay for ever-increasing home prices because interest rates have steadily fallen over the last 20 years. Interest rates are falling because baby boomers are aging and are no longer an inflationary force.

          Supply constraints? There are always supply constraints in a speculative market. My assistant owns 5 revenue properties.

          We should also be mindful of speculative foreign investment in our housing markets. This money can recede as quickly as it arrived.

  2. With an increase in down payment, then ‘bank of mom/dad’ will more likely just step up, but First Timers aren’t really causing the market to go crazy. It is speculators and move up buyers. We live in a society where people in YVR/YYZ have the wealth effect, so they feel rich because there house is worth so much, so they buy nice cars, spend lots on renovations, and move up to more expensive housing. ‘sold over asking’ on their house causes them to ‘bid over asking’ on their new home. Consumers are confident because they feel rich because of the escalation in their homes value.

    The ones pushing the market should be targeted.

    Bank and broker regulations will just push people to find work around programs like private mortgages. Like Cigarettes, a targeted tax may be the best remedy. Some examples include taxing speculators, luxury buyers, foreign investors, shadow flipping, home flippers, vacant homes & condos, etc. I am not one for more taxes, but our government finances look grim.

    Reward proper behavior in the real estate market. For example, reward low risk home owners.

    We should make it easy for people using housing for the right use ‘as a place to live’; instead of the alternatives..

  3. Mr. Charles is a mortgage insurer so he responds from an insurer’s perspective: the data does NOT indicate that a doubling of the minimum down payment on all homes in Canada would cool the the 2 super hot markets but would harm most of the other housing markets. I don’t think it is incumbent on Mr. Charles to have the solutions to handle run away price increases in two regions. His expertise is how changes in his product will effect the country’s overall real estate situation and he answered that question decisively. He is simply correct: 10% down payment minimums are no answer to excessive price increases in 2 unique regions.

  4. @would-be buyer:

    By the way, all of the government programs and institutions you listed have existed for decades, through hot and cold markets, except for 0/40 which ended 8 years ago. You guys have to get some new material.

  5. Just a point about government involvement in the Canadian housing market: the government of this country is massively and positively involved in housing. Ever traveled to Mexico? Caribbean? Eastern Europe? Observe the effect of zero government involvement in housing markets. CMHC and the other private mortgage insurers using government guarantees have created a unbelievably good result for all Canadians. I cannot emphasize enough: fantastic results for homeowners in this country. So let’s just try to make sure that wonderful system continues and today the threat to lenders and insurers comes from two super heated markets and the reasons for those two bubbles have virtually nothing to do with 5% down payment home buyers. Changing minimum down payment rules for ALL markets is just a bad idea.

    1. Ron Butler:

      I agree, changing the minimal down payment will do nothing to cool housing prices in VA and TO and will likely damper prices elsewhere in Canada that aren’t problematic. That said, VA and TO make up a significant portion of total housing sales in Canada and any downturn in these two cities will have significant consequences to the Canadian economy. Buyers in VA and TO must take on massive debt to buy homes to compete with speculative local and foreign investment. In the US, the hardest hit was the middle class who participated in their speculative real estate bubble. Gutting the middle class in Canada would send us into a recession. The BOC is now sounding the alarm. Buyer beware.

      1. @would-be buyer:

        “Without data, you’re just another person with an opinion.” W. Edwards Deming

  6. I really don’t think regulations or any other government initiatives will help slow down the growth in housing prices or increase the relative safety (i.e. greater down payment). Maybe foreign buyers are an issue, maybe down payments are too low, I really can’t say. However, the cost of home ownership has remained fairly stable over the years due to falling (unsustainable) interest rates. Until interest rates begin to rise, I really don’t see much happening in the short-term. That said, the longer it takes for rates to rise, the harder the landing will be for home buyers.

  7. I’ve mentioned several times, with no response or comment, that the municipalities of GTA/GVA add a special property tax of 15% on the portion of the purchase price exceeding $1million. Maybe it doesn’t need to be 15%, maybe half that or less, but it would sure give sober thought to anyone considering buying a property with >1 mil price tag.

    1. So if I bought a $2 million house I would pay another $150,000 a year in property taxes? Do you have control of your mental faculties?

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