First-time buyers will feel pinch | Toronto Real Estate

First-time buyers will feel pinch

Less purchasing power. Mortgage changes will ‘make it more difficult for people starting out in life’

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New mortgage rules announced by the Conservative government yesterday will have a greater effect on the high-priced real estate markets in Toronto and Vancouver than in Montreal, analysts say.

Photograph by: DAVE SIDAWAY GAZETTE FILE, The Gazette

Tougher mortgage rules announced yesterday by the Tory government might not dissuade Montrealers from becoming homeowners, but they will likely force first-time buyers to scale back their purchases, local housing market specialists say.

While Ottawa’s decision to stop backing home loans exceeding a 30-year period may have a greater impact on the high-priced Toronto and Vancouver markets, it will still affect Quebec sales, they say.

TD Bank senior economist Pascal Gauthier said the new rules -which also lower the maximum amount Canadians can borrow against the value of their homes to 85 per cent from 90 per cent – would affect about 20,000 out of 450,000 total resales across the country.

Mortgage brokers, however, say it will make it harder for cash-strapped property owners to refinance their homes.

“This will have an impact on the market for sure, but by how much, we don’t know,” said Pierre Langlois, director of government affairs for the Quebec Federation of Real Estate Boards. “People who are buying homes will have less purchasing power.”

Across the country, record-low interest rates have driven first-time home buyers to acquire property over the last two years. In Montreal, the trend has led to record condo building in 2010, converting thousands of former renters into homeowners.

“I can’t tell you the exact impact,” said Serge Bizien, executive sales director for Groupe Cholette, a developer with projects in Griffintown and in Brossard. “I don’t think it’s going to make a difference between someone buying, or not buying. But it’s just going to make it a little more difficult for the people starting out in life.”

Bizien said he doesn’t believe shortening the amortization period will help reduce debt because most homes are sold within a decade of being purchased.

“It will not help. It’s a measure that is futile,” he said. “Does it really matter whether we pay for the property in 30 or 35 years if the property is sold in five years?”

Among the new rules announced yesterday, buyers must take a 30-year or shorter term to qualify for government-backed mortgage insurance if they can’t make a 20-per-cent down payment on a home.

The previous limit was 35 years.

The longer the amortization period, the lower the monthly payment but the greater the interest payment.

“The 35-year term is pretty common,” said Jason Zuckerman, a mortgage broker with Hypotheca.

“People are looking for the lowest monthly payment possible. They want to try and squeeze as much as they can. When you take a 35-year amortization, you can get more house for your dollar.”

Under the new rules, a buyer with a $1,500 mortgage budget would only be able to buy a home worth $315,000, compared with a $340,000 home under the 35-year term, Langlois said.

Jacques Vincent, copresident of developer Prevel Group, which is building the Seville condo project downtown, said the new rules won’t deter sales, but it might make the difference between a first-time buyer purchasing a 900-square-foot unit, or an 850-square-foot unit. At most, 10 per cent of Prevel buyers ask for a 35-year term mortgage, he said.

Like the government, Vincent said he is also concerned about the level of household debt in Canada and Prevel has actually taken steps to weed out financially weak buyers.

Under Phase II of the Seville project, Prevel required buyers to put down a 15-percent down payment on their units instead of the minimum five per cent required with an insured mortgage.

Langlois said Finance Minister Jim Flaherty should be looking at a different target if he is really concerned about the level of debt among Canadians -credit cards.

“If Mr. Flaherty were very serious about reducing debt, he would regulate credit cards.”

alampert@montrealgazette.com

 

 

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About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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