VANCOUVER (NEWS 1130) – Ottawa’s new first-time homebuyers incentive is not supposed to help Canadians buy houses worth more than half a million dollars, according to the minister responsible for the Canadian Mortgage and Housing Corporation (CMHC).
The plan, meant to help middle-income families afford their first home, likely won’t get that demographic very far in the hardest hit areas like Vancouver and Toronto.
“This is targeted at first time homebuyers,” Jean-Yves Duclos, the minister responsible for CMHC said at a new conference on Vancouver’s Granville Island. “It enables them to transit through the usual path that families follow, when it comes to buying their first home. First, finding and affordable rental home, which we are investing very much in, and then helping those families buy a home, which is affordable as their first-time home.”
Under the First-Time Home Buyers Incentive (FTHBI), which was announced in Tuesday’s budget, CMHC will share a small part of am eligible first-time buyer’s home equity to reduce their monthly mortgage payments, but only on homes up to $480,000 in value.
Eligible buyers must have an annual household income of less than $120,000 and a minimum down payment for an insured mortgage. The mortgage and incentive must be less than four times the annual household income. Buyers could get up to 10 per cent shared equity on a new home and five per cent on all others.
The low home price and income threshold are to target middle-income earners and prevent money laundering, but in cities like Vancouver and Toronto, even a small condo can cost well above $500,000. The incentive will likely to do little for anyone wanting a detached home.
“We understand that First time homebuyers will typically not be able to buy a million dollar home,” Duclos said. “We know that they will be looking for a smaller investment. But even that smaller investment is sometimes very difficult with middle class wages and incomes. It’s not easy even to buy a home with a mortgage of $400,000.”
Homeowners would eventually have to repay the money, possibly when they sell, however the specifics have not yet been made public.
The federal government estimates 100,000 first-time homebuyers will benefit from the program over the next three years. Duclos expects the market will change and housing supply will increase. The federal government also hopes the movie will incentivize developers to build more lower-prices homes.
Duclos says we’ll soon learn the full details of the plan, like what will happen if housing markets drop.
“Although the details are not fully revealed in yesterday’s budget, you’ll see very soon how that works,” he said, adding the government is taking steps to mitigate risks in case of market changes.
Homebuyers will also be able to access more of their Registered Retirement Savings Plan to help pay. The Home Buyers Plan annual withdrawal limit has been increased to $35,000 from $25,000, however those who take advantage of the program will still have to put the amount back into the RRSP’s within 15 years to avoid it being put onto their income taxes.
The province is also investing $10 billion over nine years to build 42,500 new rental units across Canada, with focus on low-rental supply areas like Vancouver and Toronto.