Today Finance Minister Bill Morneau will release the Trudeau government’s final budget of their current mandate. We are just a few months away from the next federal election. The current Liberal administration hope to change public opinion with the Federal Budget 2019. In particular, the Liberals hope to shift the attention away from the SNC-Lavalin debacle. It is an opportunity to turn the conversation towards the upcoming federal election. Those of us in the real estate industry hope to see a change in mortgage rules that will make it easier for millennial home buyers to enter the market.
The budget arrives in a period of economic uncertainty. National growth has come to a snail’s pace. And so this budget is expected to carry a number of new spending programs. Potential programs may include measures to help retrain mid-career workers, new steps towards creating a national “pharmacare”, tax credits and incentive spending for the journalism industry, amongst others.
Federal Budget 2019 may address obstacles to entering the real estate market
Mr. Morneau has mentioned several times in the past that the government is quite concerned about home ownership obstacles. He has shown an interest in removing some of the roadblocks preventing young Canadians from being able to afford a home. He made it clear he is looking for ways to help them.
A multitude of real estate industry groups across Canada have urged Ottawa to make amendments. Of particular interest are changes to policies that would help first time buyers. Some of those policies range from amending the mortgage stress test to increasing the maximum amortization period for first-time insured home buyers from 25 years to 30. (By insured we mean buyers unable to make at least a 20% down payment on their home, and are therefore obligated to get mortgage insurance.)
What changes can we expect from the Federal Budget?
We expect (or rather speculate) that the Federal Budget 2019 will, indeed, include a change in amortization rules. If passed, this change should offset some of the effects of the mortgage stress test. This change will make it easier for millennial home buyers to afford a new home. A longer amortization period translates into lower monthly mortgage payments. However, a longer amortization period also means that new home buyers would be able to purchase pricier homes. Of course, the downside of a 30-year mortgage is that you will pay more interest over the course of the loan repayment.
This change in mortgage policy has the potential to inject new life into the current sluggish real estate market. However, not everyone agrees this change is for the best. RBC Economics has expressed concerns. It claims that “most of the proposed solutions would actually make home ownership even more challenging by inflating prices, unless they were accompanied by measures to improve supply.”