First-time buyer crisis: Is it time for longer amortizations?

The idea has been frequently touted by industry members as a possible solution to affordability challenges

First-time buyer crisis: Is it time for longer amortizations?

As struggles for first-time home buyers continue in Canada’s housing market, the idea of longer amortizations for new entrants to the market is one that continues to be a popular one among mortgage professionals across the country.

The proposal looks set to feature prominently in Hill Week, a lobbying effort in Ottawa by Mortgage Professionals Canada (MPC); the association has recommended that the federal government introduces amortization periods of up to 30 years for insured mortgages among new buyers.

It’s also one that’s found favour among many agents and brokers, with a prominent member of Canada’s mortgage broker community telling Canadian Mortgage Professional that it would offer an effective way of helping ease the increasing affordability concerns facing prospective first-time buyers.

Sadiq Boodoo (pictured top), principal broker at the Whitby, Ontario-based Approved Financial Services, said that a longer amortization period for new buyers could be up to 40 years, a change that would reflect the new realities of purchasing and owning a home.

“Thirty years ago, 40 years ago, you bought the home and [would] live in that same home for your entire life. That’s no longer the norm,” he said. “People buy a home, they move up into a bigger home or they move down into a smaller home.

“It’s not uncommon now where a person might live in six different houses throughout their lifetime or more. Knowing the vast majority of people will not live in the same house their entire lifetime, so therefore they’re not spending that full 40-year [period] in there – why not give them a 40-year amortization just to help them get into the market?”

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Such a policy could be tracked the same way it’s currently done with the land transfer tax credit, Boodoo said, with lawyers determining and confirming eligibility for the program.

The maximum amortization on all homes insured by the Canada Mortgage and Housing Corporation (CMHC) is currently 25 years, having reduced from 35 years in 2011, and then 30 years the following year.

In its recommendations to federal lawmakers for Hill Week, MPC is making the case that it’s become increasingly difficult for would-be buyers to afford the down payment, and that Canada is currently home to “some of the world’s most stringent qualification criteria.”

Recommending a 30-year insured amortization tailored specifically for first-time buyers, the association said that “will permit them to enter their first home with a lower and more manageable payment in their first years of ownership.

“This creates an opportunity for equity growth over time and increases Canada’s financial strength,” it added.

Problems facing new buyers have remained acute in the opening months of the year, Boodoo said. For many of those who are attempting to qualify for a mortgage as sole applicants, affordability is effectively non-existent.

“At the beginning of the year, we always have people that make that attempt to see if they can buy a home. A lot of them honestly can’t and won’t be able to without a lot more work,” he said.

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“It is a struggle because the ones that are trying to do it on their own first aren’t coming close to the price points. We see [applicants] coming into the $600,000, $700,000 [range] – but when a townhouse is selling for $900,000, what are they going to buy?”

The federal government introduced the First-Time Home Buyers’ Incentive in 2019 in an effort to address the escalating problems faced by new entrants to the market.

That program offers a shared-equity approach aimed at reducing monthly housing and mortgage costs for new buyers, with the Liberal Party pledging during last year’s federal election campaign to amend the policy by offering a choice between the current equity-sharing model and a loan repayable at time of sale.

Still, it hasn’t seen significant uptake among clients, Boodoo said – mainly because affordability continues to be the biggest challenge.

“Since that program launched, we had two inquiries, and after running the numbers and showing clients what the true impact to them was, they realized it wasn’t really beneficial,” he said. “That program hasn’t really impacted purchasers in the way they intended.

“We haven’t seen people’s affordability increase because of it. Yes, it’s helping with the down payment – but the reality is that the income to qualify restricts them into a price point when the market has exceeded that price point.”