Government expands mortgage rules, easing affordability for first-time buyers and new home purchases
Prime Minister Justin Trudeau’s government plans to introduce 30-year mortgages for all first-time buyers and those purchasing newly built homes.
This move, reported by BNN Bloomberg, is aimed at regaining the support of younger Canadians as the leader faces political challenges.
The new measure, set to take effect on December 15, will also increase the eligibility for mortgage default insurance to homes valued up to $1.5m, up from the current $1m cap.
This change allows buyers to consider more expensive homes even if they have less than a 20 percent down payment, provided they secure mortgage insurance.
Finance Minister Chrystia Freeland described the reforms as the most significant in decades, stating, “We are now making the boldest mortgage reforms in decades to unlock homeownership for younger Canadians.”
Until this year, buyers requiring government-backed mortgage insurance were limited to 25-year amortizations. Trudeau’s administration began easing these restrictions in April, permitting 30-year amortizations for first-time buyers purchasing newly built homes.
The new announcement will expand access to 30-year mortgages, lowering monthly payments for a broader range of buyers. Freeland highlighted that insured first-time buyers represent about 20 percent of the Canadian housing market, with new builds accounting for 4 percent.
She also pointed out that the insured mortgage cap has remained unchanged since 2012, while housing prices have nearly doubled. In August 2024, the average home price reached $1.1m in Toronto and $1.3m in Vancouver.
Critics of the policy have raised concerns that it may fuel housing price increases and increase household debt. Canada already has the highest household debt levels among the Group of Seven countries, and over-investment in real estate has been cited as contributing to the country's productivity issues.
Benjamin Reitzes, a strategist at the Bank of Montreal, expressed caution about the potential consequences of the reforms, noting, “My bigger concern is that the market has calmed and behaved as well as policymakers could have hoped, and now we’re adding fuel.”
In June, Desjardins economist Marc Desormeaux conducted research on the possible effects of extending mortgage amortizations. He concluded that while the policy would provide immediate relief for buyers, it could lead to an overall increase in home prices over the medium term.
Desormeaux wrote, “Affordability would eventually become even worse than in the base case as initial gains are overcome by a more dramatic rise in home values.”
At a news conference, Freeland responded to concerns about rising home prices by stating that the reforms aim to increase housing supply. She emphasized that the changes to mortgage amortizations are specifically focused on new builds, which could help alleviate the supply-demand imbalance.
Freeland also mentioned her government’s additional efforts to support homebuilding, including billions in funding for municipalities to promote denser zoning and reduce bureaucratic delays.
She reiterated, “What this is all about is putting the dream of home ownership in reach for younger Canadians, giving first-time home buyers a leg up in the housing market.”
Calculations from Bloomberg show that extending a mortgage from 25 years to 30 years reduces monthly payments by 8 percent, assuming a 5 percent interest rate, but increases the total interest paid over the loan term by 24 percent.
Recent data on Canadian home sales shows a rise in market activity following consecutive interest rate cuts by the Bank of Canada in June and July.
New property listings increased by 1.1 percent in August, with a total of 177,450 homes for sale at the end of the month. This represents a nearly 19 percent increase compared to the same period last year.
Housing remains a central theme in Trudeau and Freeland’s economic messaging. They have introduced various programs aimed at increasing home construction and making financing more accessible.
Despite these efforts, Trudeau’s approval ratings have not improved significantly, and political pressure continues to mount. Although the next federal election is scheduled for October 2025, it could occur sooner.
This possibility increased after a key parliamentary ally withdrew from a power-sharing deal earlier in the month.
As voters in a Montreal district cast ballots to fill a long-held Liberal seat, many view the special election as a reflection of Trudeau’s current leadership standing. If an election were held today, polls suggest Pierre Poilievre’s Conservative Party would likely secure a majority government in Parliament.
