Banks Are Requesting Larger Down Payments

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The big news this week is that the heads of Scotia Bank and National Bank are urging Ottawa to increase the Minimum Down Payment on all homes under $1 Million to at least 10%.

As it stands Home buyers in Canada today must put a minimum of 5% Down Payment on all homes under $500k and 10% on the excess of this amount till $999.9k. On homes above the $1M, the minimum Down payment is 20%.

As it currently stands the majority of first time home buyers opt to have a CMHC backed mortgage with a Down payment of 5% rather than waiting to save up the required 20% that would see them avoid the CMHC fee altogether. The logic is that they get into their homes sooner and take advantage of building equity with every mortgage payment.

If what Louis Vachon and Brian Porter proposed becomes a reality we will see more Canadians opt to rent or remain at home with parents rather than buy. This, in the long run, will cost these young home buyers 10s of thousands of dollars in lost equity.

My opinion is that bank CEOs should stick to doing what they do best and leave mortgage policy alone.  Regulations on purchasing homes have tightened up to such a point these days that adding something like this to the mix would ultimately create an unwelcome instability to the real estate market.

If Banks want to mitigate the risk they should look at the thousands of fraudulent mortgages that they put out every year that are perpetuated by the captive sales staff that they have.

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