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A decision by Ottawa to allow first-time homebuyers to access 30-year mortgages for resale properties may give London’s sluggish housing market a much-needed jolt, with local industry watchers saying the move already is sparking interest among would-be buyers.
Earlier this week, Finance Minister Chrystia Freeland announced changes to mortgage rules, moving the cap for insured mortgages to $1.5 million from $1 million to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
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The government also will expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody purchasing a newly built home. Both measures will come into effect on Dec. 15.
This “is going to put the dream of home ownership in reach for more young Canadians,” Freeland said, adding it’s “going to have a real impact for thousands, even millions of Canadians.”
Shane McMahon, a London broker with Dominion Lending Centres, said the announcement already has led to an increase in inquiries from people wanting to know what the new rules mean for them.
“The phone calls have definitely picked up,” he said. “I think there’s a lot of questions from people on what it means for them. For those with current pre-approvals, you know, they’re wondering if they should wait.”
McMahon said the new rules could have several benefits for would-be buyers.
The first is that extending the amortization period of a mortgage could allow people to get bigger loans, increasing the buying capacity of some buyers by as much as 20 per cent, he said.
It could also make it more affordable for people hoping to enter the market, McMahon said.
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For instance, the monthly mortgage payment on a $500,000 property on a 25-year loan, with a five per cent down payment, works out to be close to $3,000. By contrast, the payment on the same property on a 30-year loan is closer to $2,400, McMahon estimated.
“$500 a month goes a long way, especially for a first-time homebuyer,” he said. “I believe this does present some opportunities for first-time homebuyers that maybe just were priced out of the London market.”
The changes, coupled with more interest rate cuts expected by the Bank of Canada, could help flip the page on what has been one of the slowest years for home sales in London in recent history, said Carl Vandergoot, broker and owner of RE/MAX Centre City Realty Inc in London.
Last month, for example, only 577 homes exchanged hands in the region, six per cent fewer than the same month last year.
“I think something like this could motivate people to actually step up their buying process and start to look more in the fall market because they have lots of inventory, lots of choice,” he said.
“I think in the new year, you could be into potentially a more competitive marketplace.”
With Canadian Press files
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