Speculation is rife among Canada’s mortgage brokers that the Department of Finance is going to make changes to the existing minimum down payment requirements for buying a home in Canada. The general consensus, unconfirmed by anyone in government, seems to be that the DoF will raise the minimum required down payment from 5% to 10%. Some have said that we will likely see a tiered structure, one that would take into account the different market conditions from city to city.

The speculation can be traced to Rob McLister of Canadian Mortgage Trends, who said that his sources tell him the government has definitely been studying the 10% down payment option and is ready to do something, likely in January. McLister speculated that a graduated scale, based on “either the home value or mortgage amount” could be structured as follows :
• up to $500,000 : 5% down payment
• $501,000 to $700,000 : 7% down payment
• over $700,000 : 10% down payment

Various recent polls have shown that many Canadians would not be able to afford a home if the minimum down payment requirement were raised to 10 per cent. A graduated approach like this, however, would spare many, especially first-time buyers, who typically need mortgages in the $200,000–$300,000 range, according to McLister. For those buyers looking at more expensive homes, having to come up with twice the down payment could still be a deal breaker. To purchase a home priced at just over $700,000, one would need $70,000 down payment instead of $35,000. “Marginal” borrowers could be priced out of the market in that case.

A sliding system something like this would likely have a cooling effect on markets like Toronto and Vancouver, without affecting those markets where home prices have not gone through the roof. Presumably, this would be the government’s main reason for introducing it.

Another possible effect such a change could have would be to boost condo sales. There are more condos priced under $500,000 in a city like Toronto than there are other types of homes. However, an unintended consequence could be an increased demand for homes under $500,000, which could then drive prices higher. If demand for higher-priced homes were to drop, their value could decrease.

Whatever happens, some in the mortgage industry feel such changes won’t make a big difference, other than to help stabilize the housing market, removing those buyers who shouldn’t qualify. Buyers who typically buy homes priced at more than $500,000 usually have higher incomes, according to one mortgage consultant who spoke to MortgageBrokerNews.ca. Those buyers can handle the higher down payments, and forcing them to do so will help protect them financially, said Kevin Gillis of Cameron Financial Consultants.

Canada Could Get a Sliding Scale for Home Down Payments by Josephine Nolan | Condo.ca