Ottawa’s mortgage changes will be a ‘double-edged sword,’ TD economist warns
Ottawa’s proposed mortgage changes may well give first-time homebuyers a near-term boost in affordability, but could also stoke vulnerabilities in the Canadian economy, a TD Bank economist argues.
Rishi Sondhi penned an analysis of the Liberal government’s plans to expand the availability of 30-year amortizations to all first-time homebuyers and on all new builds, as well as to raise the price cap for insured mortgages to $1.5 million, up from $1 million today. Both changes are set to come into effect on Dec. 15.
Longer amortizations help would-be buyers qualify for larger mortgages by reducing the monthly carrying costs of the loan.
For the typical homebuyer, Sondhi estimates the expanded 30-year amortizations will lead to an increase in purchasing power of around nine per cent.
Sondhi projects that the pair of moves aimed at loosening mortgage conditions in Canada will help stimulate homebuying in the first half of 2025. He expects that both sales and home prices will be two to four percentage points higher by the end of 2026, were it not for Ottawa’s mortgage changes.
But Sondhi told Global News in an interview Thursday that, thanks to rising prices tied to the policy itself, the initial bump in affordability tied to longer amortizations will be “completely eroded” in the next two years.
“It’s a bit of a double-edged sword there,” he said. “They do get that near-term boost to activity. But at the same time, affordability is worse than it would have been absent these policies, which then limits the impact.”
Raising the insured mortgage cap to $1.5 million will allow for more Canadians to access more expensive homes without having to put 20 per cent down upfront. Putting down less than that amount for a home allows a
Read more on globalnews.ca
