No big impact on first time home buyers, according to study
A year has passed since Canada’s mortgage rules were changed, but most first-time home buyers say the changes did not influence their purchase decision, according to a new study.
A Bank of Montreal survey reports that 66 per cent of first-time home buyers said they were not affected by the changes, while 19 per cent will be buying later versus 14 per cent who will be buying sooner than planned.
The report also states that first-time home buyers will shell out an average of $300,000 on a house, and be willing to pay up to $48,000 or 16 per cent in down payment.
The changes to Canada’s mortgage rules, which took effect on July 9, 2012, cut the maximum amortization period from 30 to 25 years and loan equity from 85 to 80 per cent of a property’s value.
Frances Hinojosa, mortgage expert for BMO Bank of Montreal, advises first time home buyers to take the shortest amortization period possible as a sign of financial responsibility.
“It’s something we have been encouraging our customers to consider for years, as it means becoming debt-free sooner,” said Hinojosa.
According to Doug Porter, chief economist of BMO Capital Markets, the changes to Canada’s mortgage rules softened the fall of the real estate market providing the means for recovery.
“While Canadian home sales weakened markedly at the time of the mortgage changes a year ago, they have since stabilized and have even partially recovered in recent months. For instance, Vancouver saw its home sales rise 12 per cent year over year in June,” said Porter.
Regionally, 76 per cent of first time home buyers in Ontario said that the new rules have little effect on their plans to buy a new house.
British Columbians are the most likely to wait longer (33 per cent), while first first time home buyers in the Prairies and Quebec had their timelines cut short by the new rules.
“First-time buyers should stress-test their mortgage to ensure they are well financially prepared for home ownership and a potential upswing in interest rates – not only to manage costs, but also to pay off their mortgage as soon as possible,” Hinojosa said. “Determining what your mortgage payments and overall costs of home ownership will look like, and then living in that financial reality for a year before entering the market, can be an effective strategy.”
Hinojosa added that getting a pre-approved mortgage prior to searching for home prospects is highly advisable.