By now you’ve undoubtedly heard about the mortgage lending changes ushered in by federal Finance Minster Jim Flaherty, including his move to kill government-backed mortgage insurance on homes worth more than $1-million.
Although shorter amortizations will clearly affect a wide range of people, you may wonder how many people will be affected by the million-dollar change. The answer: hardly any.
One CMHC report indicates that only 5 per cent of all the loans it insures are for amounts over $550,000 (its highest bracket), up 1 per cent in 2011 from the year before. But it appears that for homes worth $1-million or more, the percentage of properties with mortgage insurance is much, much smaller than 5 per cent.
“My team’s estimation is that only 0.1 per cent of $1-million and above home sales have had mortgage insurance,” said Craig Alexander, senior vice-president and chief economist at TD Bank Financial Group, in an e-mail on Monday.
Industry watchers agree with Mr. Alexander, and many noted that down payments on these homes often well exceed the 20 per cent mark. “The larger the purchase price, the more people tend to put down. Usually when people are buying $2-million properties they’re putting 50 per cent down, that’s the trend,” said Dan Eisner, the CEO and founder of True North Mortgage.
Mr. Eisner said that the new restrictions could make a difference for buyers who might have chosen to make a smaller down payment in order to invest the rest elsewhere, but says that group would be very small. “When I looked at all purchases in 2012 so far that either have closed or are about to close only 15 of the 488 purchases were above $1-million, and of those only one was CMHC insured,” Mr. Eisner of his firm’s portfolio. True North has offices across the country from Vancouver to Halifax and in several major markets in between.
Ross McCredie, founder and chief executive officer of Sotheby’s International Realty Canada, which is a luxury real estate portfolio management brokerage, believes that this rule change is more of a symbolic statement than anything, as the Globe and Mail argued Saturday. “Actions like Flaherty’s will shape some people’s confidence. But there isn’t a big problem in this space,” he said.
Like Mr. Eisner, he sees the average payment on a multi-million dollar home far exceeding the 20 per cent line. “The majority of our clients are putting 35 per cent down,” he said. “I encourage them to think long-term on these purchases – at least 5 years. I think the scary thing for anyone putting 5 or 10 per cent down is that it doesn’t take a lot of movement in the market to wipe out your equity.”