Prospective first time home buyers received some good news on Tuesday, when the 2019 Federal Budget unveiled an incentive program to lower mortgage payments for households making less than $120,000 per year.
The Liberal election budget titled Investing in the Middle Class, aims to relieve middle working class debt while improving accessibility to training programs, financial support, and homeownership.
Young first time buyers have been hit hard by a combination of rising housing prices, rising interest rates, and tougher financing requirements over the last two years.
The real estate industry had called on the federal government to revise the stress test, or to extend the maximum amortization period to 30 years for first-time buyers. There had also been considerable public pressure on the government to secure more affordable housing in red hot real estate markets such as Toronto, Vancouver and – of late, Montreal.
Finance Minister Bill Morneau reported that the government was trying very carefully to revise policy to protect first-time home buyers while also protecting the market from overheating.
What has the Federal Budget Promised?
Two strategies are set to target housing affordability over the coming year:
- Loans available under the The Home Buyers’ Plan (HBP) will be increased from $25,000 to $35,000. Couples buying together will therefore have access to $70,000 together.
- A new equity sharing program called the First Time Home Buyer Incentive will invest $1.25-billion into helping time buyers offset mortgage costs.
What is the First Time Home Buyer Incentive?
This new government incentive will provide interest free mortgage loans to first time buyers earning less than $120,000 per annum.
The Canada Mortgage and Housing Corporation (CMHC) will loan up to 10% for new builds and 5% for resale housing.
CMHC then retains the equity percentage in the home until the loan is paid back, which could be when the home is sold, or when the buyers are financially able.
An incentive of 10% equity share on a $400,000 home would reduce monthly payments by $225 per month, or $2,700 per year.
The federal government is aiming to officially launch the initiative this autumn. It is anticipated that 100,000 first-time buyers will benefit.
- Applicants must be first time buyers
- Household income must not exceed $120,000 per year
- Buyers must have a minimum down payment of 5% for an insured mortgage
- The total mortgage value cannot exceed the yearly household income by more than 400%. So if a buyer is earning $100,000, their mortgage budget will be capped at $400,000.
The Canadian Real Estate Association’s (CREA) president Barb Sukkau stated his support of the incentive:
“Millennials are passionate about owning their home, but many are worried they will never be able to because of higher home prices and tougher mortgage qualification rules. REALTORS have been advocating for the modernization of the HBP and are pleased to see it addressed in Budget 2019. The measures announced today will help today’s millennials in a tangible way, while also addressing some longer-term concerns related to housing supply and sustainability.”
Which other Federal Budget measures will impact the housing market?
Aside the first time buyer incentive, the government has unveiled plans for:
- A Rental Construction Financing Initiative to help build 42,500 new rental housing units across Canada. $10 billion in financing will be made available over nine years, extending the program until 2027–28.
- Impact Canada Initiative will launch a Housing Supply Challenge which invites communities to propose housing initiatives that will benefit their groups. This has funding of $300 million.
- An Expert Panel on the Future of Housing Supply and Affordability has been established between the federal government and the provincial British Columbia government. This aims to research supply modelling and related data collection in order to make better policy decisions.
- CRA audit teams will launch new efforts to counter money laundering in the housing market. These include better technology to monitor transactions and $1 million in funding for StatsCanada to conduct a further data needs assessment.