The federal government announced a new plan to to help first-time buyers on Monday: here are some details and also some questions that are yet to be answered.
To qualify for the program, the first-time buyer must have an annual income of under $120K. The Canada Mortgage and Housing Corporation (CMHC) will loan up to 5 per cent on a resale home and up to 10 per cent on new one as an interest-free loan that must be repaid within 25 years. If the property goes up in value, that 5 or 10 percent stake will be increased accordingly. If it drops in value, the CMHC stake will be decreased. If a buyer wants to sell before the 25 years are up, the same rules apply.
What is not clear is if that $ 120K household income applies to everyone who will be on title. If parents co-sign (as so many do) , will their income count towards a $ 120K limit? If so, it won’t help many of those buyers at all: that limit will be hit very quickly if parents have to qualify.
The total value of the mortgage can be a maximum of 4x income, or $480,000. Once you factor in a down payment, the maximum value of a home you could purchase under this plan is $ 565K. That’s a healthy amount in Ottawa where the average price of a home is less than that (at least in theory), but it’s not going to help anyone in Vancouver or Toronto. It’s also somewhat less than you can get under a conventional mortgage.
Timing-wise, CMHC will accept applications on September 2 for properties closing after November 1. Which means that first time buyers in Ottawa who want or need this kind of assistance won’t get it this summer. And in a superhot market like Ottawa, this is when they need it.
Finally,I understand that the mortgage loan insurance CMHC requires lenders to charge, and which will be passed on to borrowers, will be based on the total mortgage, including the CMHC funded part, which will add around 4% to the cost.
This program is being rolled out in conjunction with an increase in the amount of money a first time buyer can withdraw from their RRSP without paying taxes on it. That amount will go up from $ 25K to $ 35K. The problem I see is that I have yet to run into a first time buyer who had an RRSP — they were always saving money to put towards a down payment.
Will it help some first time buyers? Absolutely. But not until later this fall, and not as many of them perhaps as the government predicts. A better strategy, I think, would have been for the feds to relax the mortgage stress test somewhat — which applies to everyone –rather than entering into a co-ownership scheme with a subset of first time buyers.
I’m already thinking through the legal implications of this one too. There’s one thing that troubles me about it. It’s one thing to impose national restrictions on lenders, or even to loan money. But as an old constitutional lawyer (long since retired and no longer practising law), I find myself wondering: when Property and Civil Rights fall completely within provincial jurisdiction, can the federal government create a program that makes it a co-owner of a buyer’s equity stake in their own property?