First buyer incentive sweetened due to low demand
January 15, 2021
Canada’s First-Time Home Buyer Incentive (FTHBI), which has met with very low demand, has been sweetened to attract more applicants in Canada’s most expensive housing markets of Toronto, Vancouver and Victoria.
Since its introduction in 2019, the FTHBI has struggled to gain traction among first-time buyers. despite a surge in housing sales across Canada. As of September 30, 2020, Canada Mortgage and Housing Corporation (CMHC), which administers the FTHBI program, received just 9,520 applications worth about $173 million in shared-equity mortgages.
The government had earmarked $1.25 billion over three years with the goal of assisting 100,000 homebuyers to purchase homes.
Under the program, the government provides first-time buyers with an interest-free down payment loan of up to 5 per cent for resale purchases, and 10 per cent for a new home. The CMHC then participates in any rise or fall in value of the home, and the loan must be repaid either when the house is sold or within 25 years.
The government’s changes will ease eligibility criteria for first-time buyers in Toronto, Vancouver and Victoria. The changes are expected to come into effect in spring 2021, the government said.
The changes mean that first-time buyers:
• Will be able to purchase a home up to four-and-a-half times their household income
vs. four times their income currently
• Can participate if their household income is $150,000 or less
vs. $120,000 currently
• Can buy a pricier home with a minimum down payment because the maximum purchase price that will qualify under the program rises to about $722,000 in those three markets vs. about $505,000 nationwide
The government said the changes could help an additional 20,000 Canadians benefit from the shared-equity program.
The current program is most popular in Quebec, where 3,916 applications have been approved. This represents $63.4 million in shared equity—$49.3 million of which was funded through the program.
There were 2,591 approved applications from Alberta representing $60.8 million in mortgages. Ontario saw just 743 approved applications worth $13.6 million, while B.C. saw 327 applications approved worth $5.9 million.
The original FTHBI limited home purchases to $505,000 or less for those making the minimum down payment. However, the average home price in Toronto is now $955,615 as of November 2020, $1.044 million in Vancouver and close to $1 million in Victoria.