Are lower first-time buyer downpayments the answer to Canada’s housing affordability crisis?

Nova Scotia’s government introduced a plan this week to cut the minimum downpayment required for a first-time home purchase, announcing a program allowing new buyers to put 2% down through participating credit unions.

Some questions remain on how those measures will be implemented, but it’s already sparked a debate on whether similar steps are needed in other provinces to unlock housing affordability and boost homebuying prospects for younger Canadians.

While home prices have slipped across many major markets over the past two years, they remain well above what many hopeful buyers are able to afford – particularly in Toronto and Vancouver, where home values are still eye-wateringly high despite their recent slide.

Drew Donaldson (pictured top), mortgage broker, principal at the Toronto-based Donaldson Capital, told Canadian Mortgage Professional he wasn’t opposed to lower downpayment requirements for first-time buyers in Ontario even if it only impacted a small subsection of the market.

That could even boost prospects for the city’s beleaguered condo sector, which is showing no sign of a recovery in the early months of 2026 as sales and prices continue to slump.

“They do need to bring in some legislation that frees up the condo market because right now there’s not a lot of sales happening,” he said.

And allowing first-time buyers easier entry to the condo market could offer them a crucial first step on the homebuying ladder, according to Donaldson.

“For first-time buyers, what historically has been a good way to climb the ladder of homeownership is you buy a condo, live in it for three to five years, pay down your mortgage, build a little bit of equity, and then you end up rolling that equity maybe into a townhouse or a semi-detached,” he said.

“And then eventually as you progress, maybe you get into a detached home down the road. So I do think first-time homebuyers are an important piece of the market. I’m all for it – and as long as people qualify and have good income, good credit, then I see no issues with it.”

Latest stress test decision leaves picture unchanged for buyers

The Office of the Superintendent of Financial Institutions (OSFI) opted to leave the mortgage stress test unchanged in late January, holding the qualifying rate steady after its latest deliberations.

That means borrowers at federally regulated lenders must prove they can afford payments of 5.25% or their contract rate plus two percentage points, limiting how much they can borrow and helping ensure they can handle future rate increases.

While that measure has been viewed as an important one in helping Canadians absorb the shock of the interest rate jump seen between 2022 and 2024, Donaldson said he was “a little disappointed” by OSFI’s decision not to lower it this time around, especially given how much the housing market has cooled.

“In the bull market, I felt they really ratcheted up the tightening of the rules. There were constant rule changes every six months, every year – which is fine. It was in some respects warranted.

“But now that we’re heading in the other direction and things have levelled off, I felt the stress test should have been relaxed a little bit. And it’s not just because what you’re seeing right now is not exuberance in the market. You’re not seeing anyone and everyone jumping in to try to get an [offer] on a property – it’s going in the other direction.”

Rate cuts boost affordability – but is more government action needed?

The silver lining for buyers: rates have fallen precipitously since 2024 thanks in part to a flurry of Bank of Canada rate cuts, meaning the outlook has at least improved for borrowers even if affordability is still stretched.

“In 2024, prime was at 7.2%. And based on the stress test, you have to qualify someone for 2% above the contract rate,” Donaldson said. “So as rates have come down 2.75% since then, it’s actually gotten slightly easier to qualify.”

But he says provincial and federal governments could still do more to help homebuyers get their feet in the door.

“The government stepped in when prices were going up. Why can’t the government step in a little bit as prices are going down?” he said. “I know maybe it’s a healthy correction at this point, but we just don’t want to get too far.

“I think providing consumers more options, more lenders, having a vibrant mortgage market – regardless of whether prices are going up or not – is important.”

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