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CMHC Aims to Slow Condo Investors with Restrictions on Mortgage Insurance for Second Mortgages

June 20, 2014 - Updated: June 20, 2014

The Current Real Estate Market in Canada is on Fire

As the summer rolls around once again, 2014 is proving to be a busy one in the Canadian real estate market. Just when we thought the condo market was slowing down and was finally stabilizing, it has caught fire again with new constrictions on the rise. This has forced industry regulators to react and add new restrictions for buyers, specifically aimed at condo investors in the Canadian market.


What the Numbers Say

Based on the numbers that were released in early May by the Canadian Mortgage and Housing Corporation (CMHC) new housing starts are on the rise. Here are the numbers:

  • New housing starts are up 25% in April compared to March
  • Single family home starts have slowed – About 8% lower than last year for this time of the year
  • New builds for multiple unit buildings and condos in April was up by more than 35% - A significant increase compared to last year’s numbers
  • New home prices in Canada continue to rise
  • Canadian household debt growth accelerated in March, up more than 4% compared to the same time last year
  • Mortgage debt is up about 5%

These numbers are pointing to a specific area of growth within the market – condo investment.


Condo Market Is Surging Again

As in past years, the condo market, particularly in large city centers such as Toronto and Vancouver is experiencing a somewhat surprising upswing, especially for new development projects – an area that had slowed somewhat to become better aligned with demand. With a boost and increase of more than 35%, some concern has developed within the industry, causing the CMHC to take action to protect Canadians and regulate investment in the condo industry, especially when it comes to second mortgage for investment properties.


CMHC Announces Changes to Insurance

The sudden upswing in the condo market has not gone unnoticed and the CMHC has made changes to its mortgage insurance rules to counter act these changes. The CMHC recently announced that it would no longer offer mortgage insurance on second mortgages. This is a significant change that will help to put a damper on condo investments.

Since mortgage insurance is mandatory for all real estate purchase where buyers have less than a 20% down payment, this means that if people want to invest in a condo as an investment or rental property, they will have to put up more of their own money upfront to do so, something will should deter people who are buying condos for purely investment purposes. 20% is a large chunk of money for man, especially considering the current housing prices in condo heavy regions across the country.  This will also help to reduce the risk these investors make on the financial market.  The CMHC has also discussed more changes may be on the horizon.


Why The Changes to Mortgage Insurance Rules?

The new changes to mortgage insurance are meant to slow investors, not people looking to buy a condo to serve as their primary residence. With both household and mortgage debt on the rise, these new measures are meant to counteract this and protect Canadians from taking on more debt, primarily in the form of a second mortgage. While most are quick to blame credit card debt for economic instability, it is actually housing and mortgage debt that is getting many Canadians in over their heads and has them living above their means.


What Does This Mean for the Average Canadian?

In general, most homeowners in Canada will not be impacted by the changes in the mortgage insurance rules. However, there are some situations where average Canadians will also be impacted. For example, parents who have a mortgage that’s insured will no longer be able to act as a co-borrower for their children on an insured mortgage.  The CMHC says it will stop offering mortgage insurance to self-employed people who don’t have proper documentation to prove their income.

If you own multiple properties or are planning on investing in an income property, it’s advisable to talk with your mortgage professional about how these new changes will impact your investment plans.

Tagged with: cmhc condo investors mortgage insurance second mortgages royal lepage terrequity real estate advice toronto real estate market articles article
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