Homebuyers ignore government incentive

July 8, 2021

Novice homebuyers in Canada have soundly—and perhaps wisely—rejected the federal government’s First-Time Home Buyer Incentive (FTHBI) program, announced nearly two years ago as a way to help those struggling to afford a down payment.
Since the incentive was launched, only 39 homebuyers in Toronto and nine in Vancouver have qualified for the program. In all, 9,804 buyers have used FTHBI, despite home sales and prices hitting record levels since it started.
The government had forecast that at least 100,000 buyers would sign on.
In all, the $1.25 billion incentive, managed by Canada Mortgage and Housing Corp., has paid out only 14 per cent of the funding—$178 million—to help first-time homebuyers.
The program involves the federal government contributing between 5 per cent and 10 per cent of a first-time buyer’s down payment. In exchange, the government gets an equal stake in the home’s equity, sharing in future gains or losses in value until the loan is repaid after 25 years or when the home is sold.
Of those participating in the program, the most common mortgage value is between $150,000 and $350,000, according to iPolitics. Just four successful applications were for a mortgage valued between $450,000 and $500,000.
In May 2021, the government announced changes to the program that would allow first-time buyers in Toronto, Vancouver and Victoria—Canada’s most expensive markets—to qualify under the program for purchases up to $722,000, up from the roughly $505,000 limit in place for buyers in the rest of the country.
But the program has two major flaws. First, it requires owners to share in the home’s equity. Since the average price of homes have increased 24 per cent in the past year alone, according to the Canadian Real Estate Association, buyers would have had to share a hefty profit with the government under the FTHBI.
Second, most first-time buyers can qualify for a larger mortgage if they don’t participate in the FTHBI.
“All eligible participants would actually be able to borrow more using a traditional 5 per cent down insured mortgage,” Mortgage Professionals Canada president and CEO Paul Taylor told Canadian Mortgage Trends.