Will New Mortgage Rules Impact Toronto Housing Prices?

Posted on 31st October 2016

How New Mortgage Rules Will Impact First-Time Homebuyers

The Federal government introduced new stricter mortgage lending rules on Monday, October 17, that will seriously limit the amount of money Canadian homebuyers can borrow. The move is designed to help cool the red-hot housing markets in the Greater Toronto Area (GTA) and Metro Vancouver. The tighter lending rules will also help prepare first-time homebuyers for higher interest rates.

Not matter how you look at it, though, under the new mortgage rules, first-time homebuyers will not be able to borrow as much as they could before October 17, 2016. Whenever a home is purchased with less than a 20% down payment, the mortgage needs to be insured.

Beginning October 17, everyone interested in buying a home under $1.0 million needs to pass a stress test to ensure they can pay their mortgage should interest rates increase. First-time buyers need to show they can repay their mortgage against a higher five-year rate. The posted rate at Canada’s big banks is often significantly lower, often by two percentage points or more.

If homebuyers cannot pass the five-year test, they will not qualify for a mortgage. To qualify for a mortgage, they’ll have to come up with a larger down payment (which is difficult if you live in Toronto) or lower their expectations.

With the new mortgage rules, it is estimated that the amount first-time homebuyers can afford will fall by around 18%. That’s significant.

For example, before the new rules kicked in, first-time buyers with a family income of $80,000 and a down payment of $40,000 would have been approved for a maximum price of $520,000. Under the new rules, that same family will only get approved for a property with a maximum price of $425,000.

Impact of New Mortgage Rules on Housing Prices

The new mortgage rules are designed to ensure first time home buyers can handle an interest rate hike and cool the red-hot housing market. Unfortunately, for first-time homebuyers in Toronto , the new lending rules give less buying power at a time when real estate prices are soaring.

In September, the average price of a home in the GTA increased 20.4% year over year to $755,755. The price of a semidetached home in the region increased 23% year over year to $1.29 million. The price of the average townhome was up 24% at $655,466; semidetached sales increased 19.7% to $887,916, while the cost of a condo was up 6.5% at $446,612.1

The new mortgage rules will not have any impact on first-time homebuyers looking for a detached home. Homes valued at more than $1.0 million require the standard down payment of 20% and are therefore not insured.

There aren’t a lot of first-time homebuyers looking at homes priced above $1.0 million. And most semidetached homes and townhouses are priced below the $1.0 million threshold.

The one area that will be impacted by the new mortgage rule changes is the Toronto condo market, where the average sales price is well below $1.0 million and is a popular choice for first time buyers will down payments of less than 20%.

Where competition was spread around to a wide variety of housing types and price points, with the new mortgage rules, it’s possible that more and more first time home buyers will be competing for more affordably priced homes. At the same time, those who own a higher priced home may find it more difficult to sell their property.

Canadalend.com, Helping First-Time Homebuyers in the GTA Secure a Mortgage

Canada’s new stricter mortgage rules will be a shock to many first time home buyers. It’s now a lot more difficult for first time home buyers to qualify for a mortgage . The new mortgage rules also make it more difficult for others looking to step onto the property ladder, including those who are self-employed, have bad credit, or unstable income.

What many potential home buyers don’t know though is that the new mortgage rules only apply to those seeking a mortgage from one of Canada’s big banks or other traditional financial institutions. Canada’s non-traditional lenders are not bound by the new mortgage rules.

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Fortunately, you don’t have to use one of Canada’s big banks to secure a mortgage. As the country’s leading low-cost private mortgage solution provider, the licensed agents at Canadalend.com can help you get the mortgage that’s right for you. That’s because Canadalend.com agents are independent.

Canada’s major lending institutions will only tell you about their financial products, whether they’re suited to your needs or not. At Canadalend.com, our agents work for you. Because we’re independent, we have access to hundreds of lenders, and we work to get you the best financial products available at the best rates.

We’ll evaluate your financial situation, help you figure out how much of a mortgage you qualify for, and help you find the right lender.

If you’re interested in seeing what kind of mortgage you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.


1. “GTA Realtors Release Monthly Resale Housing Market Figures,” Toronto Real Estate Board, October 5, 2016; http://www.trebhome.com/market_news/release_market_updates/news2016/nr_market_watch_0916.htm.

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