Just How Affordable is a Toronto Mortgage?
Toronto real estate has been in the hot seat for awhile now. It’s far too active, prices are still too high, and there’s an overstock of inventory on the market right now that one day, is going to bite builders in the but. But is this city really too pricey for most? Or is it just all the media attention that has people so concerned about it? According to BMO and RBC, the two banks that have recently released stats on the affordability of a Toronto mortgage, it really is that bad. In fact, with the exception of Vancouver, Toronto is the most unaffordable place to live in all of Canada.
Affordability is calculated on how much of a person’s income is required to pay for their mortgage, and it’s a number that lenders look at very carefully when deciding whether or not to give someone a mortgage. In addition to just calculating the mortgage payments, other household expenses such as utilities, home insurance, and property taxes, are also figured in. When these expenses are added in together, if the number if over 39 per cent of a person’s income, that home is considered to be unaffordable for them, and they won’t be given the loan.
You should be asking yourself why then, if lenders are so stringent with this number and never waiver from it, why a Toronto mortgage on average right now, eats up about 43 per cent of a person’s income alone. Factor in all those other expenses and that number shoots up to a whopping 50 per cent of their income. That’s half of every paycheque going towards your home alone!
Things are getting better and homes are becoming more affordable, but RBC says that it’s slow going. On the average detached bungalow, the bank says that a $545,600 mortgage would take up 52.8 per cent of the average income in Toronto. Still far higher than the 39 per cent we want to see, but also down 0.4 percentage points when compared with the last quarter of 2012. RBC states that this is because there was less activity in the market at the end of last year than there is now.
While those numbers on the bungalow are high, they’re nothing when compared with the affordability numbers on two-storey homes. These, the most expensive of all in the City of Toronto, will take up a whopping 62 per cent of a person’s income, with average prices sitting at $640,500. For these mortgages, RBC states, it would take a minimum annual income of $131,300.
Perhaps most unsurprisingly, condos remain the most affordable, even though the two banks disagree on just how much they cost. BMO states that condos would take up just 31 per cent of a person’s income, while RBC puts it at 33.1 per cent.
So just how affordable is a Toronto mortgage? Unfortunately as it stands, unless you’re buying a condo, it’s just not.