The federal government’s new mortgage rules could have an outsized effect on one particular group of Canadians, according to the BC Real Estate Association (BCREA).
Millennials, already struggling to make home purchases in many Canadian cities, are about to see their purchasing power go down.
BCREA Chief Economist Cameron Muir uses the example of a family with an annual income of $80,000 who want to put down a 5 percent deposit on a house.
“Their purchasing power today is the value of a home around $500,000. After Oct. 17, that would fall to $400,000 dollars. That’s $100,000 difference, 20% reduction in their purchasing power. That’s going to have a big impact on the affordability of housing for millennials. It’s a substantial hit to a generation that, at best, is finding it difficult to get into home ownership.”
The new rules mean that all homebuyers will need to qualify for a 5 year benchmark rate mortgage – even if they’ll be paying a lower rate. Currently, only insured mortgages with variable rates and fixed terms under 5 years have to meet that standard.
Muir says the new rules could have significant effects down the road.
“I think that pent up demand for housing will be unleashed at some point in the future as millennials get financially retrenched and end up buying into undersupplied housing stock. And that will lead to yet another cycle of rapidly rising home prices.”