December 11, 2015
Speech on Government-Backed Mortgage Insurance Changes
Check against delivery
Good morning everyone.
I am here today to talk about our government’s role in housing and the prudent and coordinated actions we are taking to address future potential vulnerabilities in our housing sector.
The federal government’s goal is to set and maintain a framework that is equitable, stable, sustainable and protects Canadians and the economy from potential excess housing market volatility. Private and public sector economists domestically and internationally have commented on the strengths and vulnerabilities in Canada’s housing market.
While current market trends have largely been supported by strong fundamentals, there is significant variation across Canada in terms of the pace of housing market activity and potential vulnerabilities. When considering how we can address vulnerabilities, it became clear that the complexities of the market require a nuanced approach.
The minimum down payment for new insured mortgages will be increased to 10% from 5% for the portion of the house price above $500,000. This measure will come into effect on February 15, 2016.
At the same time, we will maintain the current 5% minimum down payment for the first $500,000 of the house price. Canadians who already hold mortgages will not be affected by this announcement.
That means that to buy a home worth $700,000, come February 15, 2016 a purchaser requiring an insured mortgage will need $45,000 or 6.4% down payment. Today’s measure is targeted at higher priced homes and is a graduated approach to increasing the minimum down payment proportionally to the cost of the home.
By targeting higher priced properties, we will minimize the impact on many first time homebuyers and regional housing markets where activity is more moderate, while limiting risk and taxpayer exposure to the elevated housing markets in Vancouver and in Toronto.
More importantly, this measure will increase homeowner equity, which plays a key role in maintaining a stable and secure housing market and economy over the long term.
This protects all homeowners including many middle class Canadians whose greatest investment is in their home.
Mortgage insurance is important. It helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5%.
The government guarantee of mortgage insurance is intended to support access to home ownership for creditworthy buyers and promote stability in the housing market, financial system and economy.
As part of its role to promote stability and to protect taxpayers from potential mortgage loan losses, the government sets the eligibility rules for new government-backed insured mortgages.
Today’s measure adjusts those eligibility rules to reflect prevailing house market risks and improve the resiliency of insured buyers.
By rebalancing government support for housing, this measure helps to ensure that government actions do not negatively impact housing affordability for current and future homebuyers or increase exposures for the Canadian taxpayer.
This morning, Canada Mortgage and Housing Corporation (CMHC) announced increases to the Government of Canada guarantee fees for CMHC-sponsored securitization programs. These adjustments will help to ensure that mortgage funding markets are fairly priced so that lenders are not overly reliant on government-backed programs to the detriment of private alternatives.
Also this morning, the Office of the Superintendent of Financial Institutions announced that it is planning to update the regulatory capital requirements for large financial institutions and private mortgage insurers for residential mortgages. The planned changes will ensure that capital requirements keep pace with housing market developments and risks.
Taken together, today’s actions will strengthen the resiliency of Canada’s housing finance system to promote long-term stability and balanced economic growth.
Canada truly needs all parts of the system working together to ensure that vulnerabilities remain manageable.
That is why the government will continue to monitor the housing market to make sure it remains healthy, resilient, competitive and stable for new and existing homeowners.