Should five per cent down be a requirement?

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The level of mortgage debt in Canada has sparked furious debate among industry professionals about qualification standards for mortgages.

“I know that many will disagree with me on this. However, I think there are many good hard working Canadians with good credit, that make enough money to support a mortgage payment,” Hal Tagg an Alberta-based broker and real estate agent – who disagrees that having at least a five per cent down payment should be a requirement for attaining a mortgages --  wrote on “I don't see the problem with helping them borrow the money for a down payment to help them get into their first house. If a private lender is willing to take the risk in lending the down payment money, why not let it happen.”

The comment was in response to an article about the levels of mortgage debt Canadians have accrued across the country.

According to BuzzBuzzHome, British Columbians have racked up mortgage debt faster than they’ve grown home values. In 2012, the average value of a house rose 83.7 per cent over 13 years, to $535,400 – this being before the market went ape. The amount of mortgage debt West Coast homeowners took on, however, increased more than 132 per cent over the same period to $241,800, or 45.2 per cent of the value of the home.

And at least one mortgage professional disagrees with Tagg.

“If you can’t save five per cent for a down payment, you have no business buying a house,” Blair Anderson of Anderson and Associates said in the original article. “I don’t want my clients to run into a situation where they have to get rid of the house. It’s not good for the market or for them as individuals.”

  • James Robinson on 2015-02-05 12:00:28 PM

    I have to agree with Blair on this subject. The majority of people who buy with 5% down are first time buyers and either living with parents or renting. Either of those scenarios probably have a lower housing cost than the cost of owning, so if they cannot save any money while living on the cheap, how can they possibly have the discipline to be responsible homeowners. I am sure there are rare occasions and specific circumstances that would not fit into my logic, but for the vast majority of situations, no down payment spells disaster.

  • kac on 2015-02-05 12:23:37 PM

    i can't disagree that a person should have some form of a down payment for a home purchase even if it is a gifted down payment or borrowed should the borrower have strong enough credit. I fail to see the difference in risk where a person is gifted or borrows the down payment to put as a down payment. As i see what is happening once a mortgage is placed with a bank,the bank goes out of their way for a client to offer generous loc's and credit cards and auto loans with no down payment. Seems to be a double edge sword here. If you have a loc unused or not you probably don't get a mortgage,once you get the mortgage the 3% rile no longer applies so here you go take the $20k loc.I think the borrower ends up in the same position. I see very few judgements on credit bureaus for mortgages however can't say the same about auto loans and locs and visas. Makes no sense whatsoever.

  • Lou on 2015-02-05 2:09:37 PM

    I believe that if buyers and sellers each use a Realtor it would be fairer for each to pay their own agent as opposed to now, the seller pays all to his agent who splits it with buyers agent. The problem is that lenders and insurers won't cover that expense if the price of the house is lowered by the buyer's agent's commission and many only have 5% down and so cannot cover it. Additionally it skews the valuations if there are 2 methods of payment to deal.

  • Bob on 2015-02-05 4:03:16 PM

    So the realtor/Mortgage broker wants to have his clients buy into properties with negative equity by the time they take possession when you take into consideration CMHC/Genworth fees. Wow so glad i dont get mortgage & real estate advice from him. If you have no skin in the game then dont play

  • Hal Tagg on 2015-02-05 5:21:36 PM

    When CMHC had their zero down payment program, they charged a little bit more for the premiums due to increased risk. When the program was shut down, it wasn't because of unusually high defaults, rather it was due to pressure from the federal government.

    The increased premiums more than offset the higher default rates. The zero down program was money maker for CMHC.

    I am now renewing mortgages for many of those clients who had "negative equity" on day one of their first purchase. Now they have between 15% and 25% equity and they are so happy they did it.

    Nothing wrong with no skin in the game for people with strong employment and good credit.

  • Peter Mississauga on 2015-02-05 7:28:37 PM

    Even 5% down payment is still way too low. If people can't afford to save up 20% for down payment, they are better off not buying anything. I would never buy anything at the current price even though I have 20% down payment for a small home. The current price is too high if you compare it to people income. It has nowhere to go but down. Our income is lower than the US, our house price should not be way higher like they are now.

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