CMHC hikes mortgage insurance premiums by 15%
Move affecting first-time buyers is not expected to slow Quebec housing sales
A hike in Canada Mortgage and Housing Corp. premiums on mortgage loan insurance isn’t expected to slow sales in Quebec’s stagnant residential market, a provincial real estate association said Friday.
Starting May 1, the new premiums will cost the average Canadian homebuyer requiring CMHC mortgage insurance about $5 more per month. Premiums will rise by about 15 per cent on average, CMHC said. They apply to new mortgages, not those already insured.
“I don’t think it will have an impact, the rise is too marginal,” said Paul Cardinal, director of market analysis for the Quebec Federation of Real Estate Boards.
“It’s not ideal, but I don’t think it will hurt the market,” agreed Dominic St-Pierre, director (Quebec region) at Royal LePage.
Homebuyers must purchase mortgage default in- surance from the CMHC — or from private competitors Genworth Financial or Canada Guaranty — if they have a down payment of less than 20 per cent.
In Quebec, the housing market was hard hit by the federal government’s July 2012 tightening of rules on insured mortgages. And sales, especially of condos, remain sluggish in a market that favours buyers.
Provincial sales in all housing categories dropped eight per cent in 2013, compared with 2012.
St-Pierre said the higher premiums might even help the market in the short term, if enough buyers are motivated to make their purchases before the increase goes into effect.
Neither CMHC officials, nor Cardinal said they expect a bump in housing sales before May 1.
On Friday afternoon, Genworth announced it would also increase its mortgage insurance premium rates by an average of 15 per cent.
“We believe this new pricing is prudent and more reflective of increased regulatory capital requirements,” Brian Hurley, chairman and CEO of Genworth Canada, said in a statement. “These pricing actions are supportive of the long-term safety and stability of the Canadian housing market.”
Earlier in the day, Steven Mennill, CMHC’s vicepresident (insurance operations) told reporters the rise in premiums was a “CMHC business decision” and not a directive of the Department of Finance, or an attempt to cool the housing market.
“This is not designed to affect housing market activity,” he said.
“The higher premiums reflect CMHC’s higher capital targets,” Mennill said in a statement. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long-term stability of the financial system.”
But RBC senior economist Robert Hogue told the Canadian Press that the increase will add to the debt of homebuyers because the insurance premiums are typically rolled into their mortgage. According to the CMHC’s estimates, a buyer who puts down five per cent on a $250,000 home would have to pay an extra $1,000.
“The poor first-time buyer gets to be the target once again of the various tweaks in mortgage rules,” Hogue said.
Spread over the 25-year life of a mortgage, the increase in monthly payments will be small, Hogue noted.