In March, the Federal Government came out with their long-awaited 2019 Federal Budget. For those of us on the West Coast, there was an expectation, or at least a hope, that we’d see some relief from the ‘2% Stress Test’ - Or perhaps an extension of the maximum amortization to 30 years. Instead, Ottawa introduced a new zero-interest loan to help first-time homebuyers. It’s a federal government incentive designed to target housing affordability. The real question in cities like Vancouver is: Will it work?
There are still a lot of details missing and the implementation is not slated to start until September 2019, but here’s a list of what we do know:
INTRODUCTION OF THE FIRST-TIME HOME BUYER INCENTIVE (FTHBI)
- - A new initiative that will see CMHC provide an additional 5% for the down payment for the purchase of existing homes, or 10% for the purchase of a new-build
- - The mortgage must be default insured
- - Household income must be less than $120,000
- - No monthly payments are required, and the loan can be paid back at any time, or upon the sale of the house
- - “There will be some sharing of upside and downside,” Finance Minister Morneau told reporters
- - The insured mortgage plus incentive cannot be more than four times the participants’ household income
CONCERNS ABOUT THE FIRST-TIME HOME BUYER INCENTIVE
The real question is whether this will actually help first-time homebuyers get into the market. To be clear – free money is always a nice place to start, but here are some of our concerns:
- - There are two specific areas of concern:
- - Household income must be less than $120,000
- - Maximum mortgage cannot be more than 4 times the household income
- - This restriction actually limits the amount people can borrow since households can typically qualify for roughly 4.7 times their income.
- - Since borrowers still must come up with the 5% down minimum, this incentive does nothing to help decrease the amount of cash required to close.
So, a few things to ponder:
- - If a young couple earns more than $120,000 as a household, they do not qualify.
- - If the household earns $100,000 combined, the maximum purchase price under this program is $400,000 whereas, if they chose to forego the ‘interest-free’ loan, they could qualify for a purchase just shy of $480,000.
- - Also – keep in mind that the program also includes a clause whereby the government can ‘participate’ in any upside appreciation on your property – effectively making them a joint venture partner in your purchase. Again, details on exactly how this will work were not offered.
We’re not saying this is a bad program, but it is certainly lacking in some areas. The BC Government tried a similar program a few years ago and it was scrapped within a very short time due to the fact it was largely ineffective.
On a more positive front, the Federal Budget did allow for an increase in the RRSP Homebuyers’ withdrawal.
INCREASING THE RRSP HOME BUYERS’ WITHDRAWAL LIMIT TO $35,000 FROM $25,000
- - Permits two first-time buyers in the same household to combine withdrawals for up to a $70,000 down payment
- - Available for first-time homebuyers. But as of 2020, this program is also eligible for those who split from their spouse or common-law partner, even if they are not first-time buyers
- - The funds must be repaid within 15 years, or the withdrawal will have tax implications
Again, we would have preferred a change to the ‘Stress Test’ or an increase in maximum amortization. However, when you combine a few government incentives with the fact that interest rates are falling back to near-record lows – The Spring Market in Vancouver is sure to start blooming!
As always, we’re happy to answer any of your questions and happy to help with all your mortgage needs.
~ Article courtesy of Peter Kinch
Team Cindy Gering 604 779 1292 | CINDY@TEAMCINDYGERING.COM
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