The announcement of a new CMHC First-Time Home Buyers Incentive Plan represents a shared equity mortgage program that would give eligible first-time homebuyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC.
The incentive would provide funding (equity sharing) of up to five percent of the purchase price of an existing home, or 10 percent of a newly constructed home. No ongoing monthly payments are required. The buyer would repay the incentive, for example at resale. The government has budgeted up to $1.25 billion over the next three years to support this program.
For example, if a borrower purchases a $400,000 home with five per cent down and a five per cent CMHC shared equity mortgage ($20,000), the size of the borrower’s insured mortgage would be reduced from $380,000 to $360,000, helping to lower the borrower’s monthly mortgage bill. This would make it easier for Canadians to buy homes they can afford.
The program limits eligibility to households earning a maximum of $120,000 annually, and lets them borrow no more than four times their annual household income. This limits a home purchase to roughly $505,000. This Incentive Plan will be discussed more fully in the coming days, but it is not expected to begin until fall, 2019. In principle, the increased equity share eligibility for newly constructed homes will help incent new construction and supply across Canada.
Further analysis is needed, however, some aspiring homebuyers, especially at the lower end of the economic ladder, will have greater opportunities to purchase a home with the assistance of this new program.
Also of note is an increase in the eligible RRSP withdrawal amount through the Home Buyers’ Plan (HBP). Previously $25,000, this has been increased to a maximum to $35,000.
The budget included a lengthy defense of the current stress tests but does suggest that adjustments may be made in future. We will continue to discuss this issue with policymakers.
While we did not see immediate movement on the stress tests, and the new Home Buyers Incentive Plan can be seen as an alternate and more targeted response than an insurable 30 year amortization, we are encouraged by the announcements made today.
The forthcoming federal election will provide opportunities to continue the conversations with policymakers and candidates in the coming months. We will continue our ongoing market analysis and maintain our support for a stable housing market for our members and their customers.