Higher mortgage insurance premiums are another setback for first-time homebuyers, alongside relentlessly rising real estate prices in some of Canada’s largest cities, experts say.
Despite historically low interest rates, it’s getting increasingly pricey for young Canadians to purchase their first pad.
Genworth Canada, the country’s largest private residential mortgage insurer, announced this week that its premium rates for homebuyers with less than 10-per-cent down will rise 15 per cent, starting June 1. The move follows a similar premium rate hike made last week by Canada Mortgage and Housing Corp.
Genworth says the increase amounts to $6-a-month hike for homebuyers with a 95 per cent loan-to-value mortgage of $300,000. While that doesn’t seem like much, mortgages can be more than double that in places like Toronto or Vancouver.
“All that move is doing is hurting first-time home buyers even more,” says TD Bank economist Diana Petramala,
She believes the policymakers should instead focus more on making it harder for speculators to enter the market, not first-time buyers looking to build home equity.
“While [it’s] a prudent move to manage taxpayer risk at CMHC, young Canadians are the ones who bear the burden,” Royal LePage CEO Phil Soper told the Financial Post. “The insurers have no way to surgically apply it there [Vancouver and Toronto] alone. So the entire country will feel the impact of the increase.”
Still, Sopher and executives at both Genworth and CMHC say the move will have little impact on the overall housing market, and targets homebuyers at a higher risk of default.
“This new pricing is reflective of higher capital requirements and supports the long-term health of Canada’s housing finance system,” stated Genworth Canada CEO Stuart Levings. "Genworth Canada remains committed to helping Canadians achieve homeownership responsibly and we believe these changes will not have a material impact on affordability.“
The day after the insurance hike, Genworth released a survey characterizing many first-time homebuyers as both wealthy and wise.
It says 31 per cent of first-time buyers surveyed have household incomes of more than $100,000. About two-thirds (63 per cent) made a down payment of less than 20 per cent. (There was no mention of how many put down less than 10 per cent.)
The survey also paints the first-time buyer as cost conscious: 57 per cent have avoided extra debt since buying their home; 36 per cent have doubled-up or increased their bi-weekly mortgage payments, or made a larger, one-time lump sum payment.
It cites higher median down payments in cities such as Toronto (21 per cent) and Vancouver (20 per cent), “which appear to be driven by higher savings and larger gifts or loans from a family member in those markets.” The median down payment nationally was 12 per cent.
More than half (55 per cent) of first-time buyers purchased a fully detached home, while 17 per cent squeezed into a condo, 15 per cent bought a townhouse and 13 per cent a duplex.
Not surprisingly, because they’re more affordable, condominiums are the most popular option in large, costly cities such as Vancouver (47 per cent), Montreal (40 per cent) and Toronto (39 per cent).
Levings said first-time homebuyers “have their eyes wide open, their hands firmly on their pocketbook and are thinking hard before assuming the responsibility of homeownership.
“This prudence and careful planning should serve Canada’s housing market well as responsible first-time buyers grow into responsible long-term owners.”