New lending regulations came into effect at the end of 2024, aimed at improving accessibility for both first-time buyers and existing homeowners.

Changes include the expansion of eligibility for 30-year amortizations on insured mortgages to all first-time homebuyers and all buyers of newly constructed homes, an increase from the previous 25-year maximum. Additionally, the mortgage insurance cap rose from $1 million to $1.5 million, enabling buyers who put less than 20 per cent down to consider higher-priced properties. This change is particularly significant in Canada’s most expensive real estate markets, where average home prices exceed $1 million. And, for those with mortgages renewing, the removal of the stress test requirement for uninsured borrowers switching lenders will allow Canadians greater choice and likely better rates, as banks will offer more competitive options in order to retain and attract clients.

The new mortgage rules explained

Two sweeping mortgage reforms took effect, December 15, 2024 targeting housing affordability and easing financial pressures; the federal government calling them the “boldest reforms in decades.” Key measures include increasing the insured mortgage limit to $1.5 million and expanding eligibility for 30-year amortizations. Here’s an overview of what the changes are and what they mean:

Increased insured mortgage cap to $1.5 million

The maximum price for insured mortgages has increased from $1 million to $1.5 million, opening the door for buyers in higher-priced markets like Toronto and Vancouver to qualify for high loan-to-value mortgage insurance with a smaller down payment. The rules for down payments remain the same:

• 5% on the first $500,000 of the purchase price
• 10% on the portion between $500,000 and $1.5 million

For example, buying a $1.5-million home now requires a $125,000 down payment—much less than the $300,000 needed for uninsured mortgages under the old rules.

• More Flexibility for Buyers: This allows buyers in expensive markets to access insured mortgages for homes above $1 million.
• Opportunities for Investors: Investors can now explore financing for higher-priced properties, creating new opportunities in high-end rental and development sectors.

Expanded 30-year amortizations for first-time buyers and new builds

Eligibility for 30-year amortization periods on insured mortgages has been broadened to include all first-time homebuyers and purchasers of new builds, provided the loan-to-value ratio is 80% or higher.

First-time homebuyers must meet criteria such as not having owned a home in the last four years or having experienced a breakdown in a marriage or common-law relationship.

These reforms apply to all high-ratio mortgages on owner-occupied properties or those occupied by a close relative. The government confirmed that existing eligibility criteria for government-backed mortgage insurance will remain unchanged.

• Lower Monthly Payments: This change makes it easier for buyers to manage their budgets
• Investor Benefits: More accessible financing for new builds will attract first-time buyers and boost development projects, opening doors for investors.

Government of Canada announces deferral in implementation of change to capital gains inclusion rate

On January 31st, 2025 the Minister of Finance and Intergovernmental Affairs, announced that the federal government is deferring—from June 25, 2024 to January 1, 2026—the date on which the capital gains inclusion rate would increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts. The capital gains inclusion rate represents the portion of capital gains that is taxable.

To ensure most middle-class Canadians do not pay more tax once the capital gains inclusion rate is increased, the government will maintain or enhance existing capital gains exemptions while creating a new investment incentive.

The capital gains exemptions being maintained and created would include:

• Maintaining the Principal Residence Exemption, to ensure Canadians do not pay capital gains taxes when selling their home. Any amount they make when they sell their home will remain tax-free.
• A new $250,000 Annual Threshold for Canadians, effective January 1, 2026, to ensure individuals earning modest capital gains continue to benefit from the current one-half inclusion rate. Capital gains, including on the sale of a secondary property, such as a cottage, will be eligible for the $250,000 annual threshold, meaning a couple selling a cottage with a $500,000 capital gain would not pay more tax.
• Increasing the Lifetime Capital Gains Exemption to $1.25 million, effective June 25, 2024, from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property. With this increase, Canadians with eligible capital gains below $2.25 million would pay less tax and be better off, even after the inclusion rate increases on January 1, 2026.
• A new Canadian Entrepreneurs’ Incentive, to encourage entrepreneurship by reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. This incentive would take effect starting in the 2025 tax year and the maximum would increase by $400,000 each year, reaching $2 million in 2029. Combined with the new $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs would pay less tax and be better off on capital gains of up to $6.25 million.

The proposed implementation date for the increase in the Lifetime Capital Gains Exemption and the introduction of the Canadian Entrepreneurs’ Incentive would not change.

The government will introduce legislation effecting the increase in the capital gains inclusion rate, the increase in the Lifetime Capital Gains Exemption and the introduction of the Canadian Entrepreneurs’ Incentive in due course.

An extensive lineup of programs helping first-time buyers today

These latest changes build on a range of existing programs designed to help first-time buyers tackle affordability challenges. Here’s a quick overview:

• First Home Savings Account (FHSA): Announced in the 2022 federal budget and launched in April 2023, the FHSA is a registered account that allows Canadians to save up to $8,000 per year, with a lifetime limit of $40,000, toward their first home. Contributions and investment income are tax-deductible, and withdrawals for a home purchase are tax-free, making it a powerful tool to boost buying power. Last December, David Chilton, bestselling author of The Wealthy Barber, called it “the greatest deal in the history of Canadian savings” in an “emergency” social media video, urging young adults struggling to save for their first home to take full advantage of the program.

• Home Buyers’ Plan (HBP): Introduced in 1992, the HBP has been a cornerstone program for first-time buyers, allowing them to make tax-free withdrawals from their RRSPs to fund a home down payment. Originally designed with a $20,000 withdrawal limit, it has undergone several updates, including a recent increase in Budget 2024 to $60,000 per individual ($120,000 for couples). Withdrawals must be repaid within 15 years, making it a longstanding and valuable tool to help Canadians enter the housing market.

• Land transfer tax rebates: Available to first-time buyers in Ontario, British Columbia, Prince Edward Island, and Toronto, providing savings on land transfer tax costs.

• First-Time Home Buyers’ Tax Credit (HBTC) was introduced in 2009 to assist first-time homebuyers with the costs associated with purchasing a home. In December 2022, the federal government doubled the HBTC, allowing eligible first-time homebuyers to claim a non-refundable tax credit of up to $10,000, which equates to a $1,500 reduction in income tax payable.

• GST/HST new housing rebate: Provides rebates for GST or HST on new-build homes, preconstruction purchases, or significant renovations, with the rebate amount based on the home’s purchase price.

In addition to federal initiatives, various provincial and municipal programs provide targeted support for first-time buyers, such as assistance with down payments and affordable housing incentives tailored to local needs.

Government initiatives to boost housing supply

The government has also rolled out numerous measures aimed at tackling the supply side of Canada’s housing affordability crisis. These include:

Secondary Suite Loan Program: Provides loans to help homeowners create rental units within their properties. As part of an advance announcement ahead of the Fall Economic Update, the government recently doubled the loan limit to $80,000. In addition, the loans will be offered at a 2% interest rate with a 15-year term. Further details on this enhancement are expected to be unveiled on December 16.

Secondary Suites Refinancing Option: Allows homeowners to refinance their mortgages to fund the construction of secondary suites. This option helps existing homeowners leverage their property equity to add rental units, contributing to the housing supply.

• For a breakdown of both these programs, check out our recent piece: Pros and cons of the new federal secondary suite programs

GST holiday for developers: Offers a rebate on the GST for developers constructing new rental housing, encouraging more affordable rental builds.

Canada Housing Infrastructure Fund (CHIF): A $1-billion fund supporting critical infrastructure projects, such as water and wastewater systems, to enable new housing developments.

Public Lands for Homes Plan: Unlocks underutilized federal properties to expedite housing construction and increase the availability of affordable homes.

Housing Accelerator Fund (HAF): A $4-billion initiative encouraging municipalities to adopt pro-housing policies, particularly for “missing-middle” housing types like duplexes and triplexes, to speed up construction.

The potential impact of the latest housing announcements

The government’s recent housing measures have sparked mixed reactions from mortgage brokers, lenders, and economists. Many applaud the initiatives, particularly for offering relief to homeowners facing higher mortgage rates at renewal. Extended amortizations, for instance, could reduce monthly payments, providing immediate cash flow relief to households under financial strain.

However, concerns about unintended consequences persist. Extending amortizations could keep borrowers who don’t make extra payments in debt longer, significantly increasing their overall interest costs.

Others have pointed out that the increase in the default-insured mortgage limit to $1.5 million is likely to benefit only a small percentage of buyers, given the significant down payment and default insurance premiums required for a loan of that size.

The new $1.5-million insured mortgage limit requires a minimum $125,000 down payment and a $57,750 insurance premium, making it accessible only to buyers with an annual income of approximately $327,000.