Will the Federal Budget 2019 really help first time home buyers?
The Federal Budget 2019 was unveiled with the main message of investing in the Middle class to grow Canada’s economy.
Amongst many proposals, Finance Minister Bill Morneau tabled the budget to include a few incentives to make homeownership more affordable for first time buyers. The first initiative will improve the famous Home Buyers’ Plan where the maximum a buyer could previously withdraw was $25 000, tax free and penalty free. The proposal would increase this amount to $35 000. This means a couple buying their first property, could use a total of $70 000 from their R.R.S.P.’s as a down payment. With the rising prices of real estate, this should come in handy.
Within this program, the government some rules will be tweaked. For example, a couple that divorces would be eligible following the divorce and sale of their home, to then purchase another home using this program and be considered as a first-time buyer. These incentives loosen the rules a bit, allowing for more access to the Home Buyers’ plan.
The second part is the First Time Home Buyer incentive specifically aims to lower the mortgage payments of first-time buyers. According to the Department of Finance Canada website, this would allow eligible first-time buyers who have the minimum 5% down payment to apply for a loan for an additional 5% down payment through a “shared equity mortgage” with Canada Mortgage and Housing Corporation (CMHC). Federal Budget 2019
Will this “shared equity mortgage loan” come at a cost to the home buyer?
Details are nowhere to be found for now, however this implies that the CMHC will charge some sort of interest or premium for the extra 5% loan. If you decide to buy a newly constructed home, the CMHC may lend you an extra 10% toward your down payment. The government’s goal in this case is to promote the supply and demand for newly built homes.
Will this bring back all the first-time buyers who were “priced out of the market”?
The idea behind a first-time buyer “borrowing” the extra 5% is that this will lower their monthly payment by around $228 per month.
For those who perhaps do not qualify to obtain a mortgage loan under the new mortgage rules introduced by the federal government at the beginning of 2018, this will not be of much help! Home buyers’ still need to qualify under the new mortgage “stress test” where the mortgage loan application is calculated at 2% higher than the posted interest rate.
Although the incentives are outlined by the Government, many details have yet to be provided, and may only be finalized in the Fall of 2019, after the provincial elections. As the incentives are all aimed towards first-time buyers with no consideration to the negative effects of the mortgage “stress-test” on current home-owners, economists and industry experts do not foresee a huge impact on the market. With the tightening of the mortgage rules in 2018, the Montreal real estate market has experienced a sharp decline in inventory of homes for sale. I believe the federal government missed an opportunity to address the “stress test” rules and many first-time home buyers will still not qualify for a mortgage with the new incentives.