The program will offer first-time buyers an interest-free loan of up to five per cent of the purchase price of a resale home, or 10 per cent of a new home. The loan will come in the form of a shared-equity mortgage with CMHC and is available to households with an annual income of up to $120,000. The incentive is applicable on mortgages of up to four times the applicants’ household income, resulting in a maximum home purchase price of around $505,000, assuming a five per cent deposit and a $480,000 mortgage value plus CMHC loan.
Critics have suggested that the purchase price cap means those who most need the program, in expensive cities such as Vancouver and Toronto, will get the least use of the initiative, as average home prices in those areas are far higher than the incentive’s maximum purchase price.
However, CMHC disputed this argument Thursday, saying that there are many options for starter homes in both cities under $505,000.
The CMHC wrote, “Despite the income and borrowing limits, we are confident this program can work in all markets, including Vancouver and Toronto… This program applies up to a house price of $505,000, assuming a five per cent down payment. However, we shouldn’t confuse market average prices ($1 million in Vancouver and $770,000 in Toronto) with starter home prices.
“It may not be a condo in Yaletown or a house in Riverdale, but there are options in both metropolitan areas to accommodate this program. In fact, around 23 per cent of transactions in Toronto are for homes under $500,000 and 10 per cent in Vancouver. It is very difficult to estimate the demand for the incentive; however, based on last year’s activity — more than 2,000 home buyers in Toronto would have been eligible for the FTHBI and over 1,000 in Greater Vancouver.”
The CMHC also denied that the incentive would have an inflationary effect on home prices, saying that the program had been calculated to avoid this.
The statement said, “We have carefully targeted the FTHBI to help younger Canadians having trouble affording home ownership. The program is capped at $1.25 billion over three years... We do not expect the FTHBI’s inflation effect to be beyond a maximum of 0.2-0.4 per cent.”
The housing agency added that suggestions the federal government should have reduced the mortgage stress test or increased mortgage amortization periods to 30 years would result in much more inflation.
“Limiting house price inflation will keep housing more affordable, more so than some of the other suggested policy and regulatory changes. For example, a reduction of one per cent in the mortgage insurance stress test or an extended amortization limit of 30 years would have added to indebtedness and resulted in house price inflation of five to six times more than this maximum.”
However, all these arguments may be moot if the Liberal Party of Canada is not re-elected in October’s federal election.
CMHC concluded its statement with, “We will release more details as soon as we can and we expect the program to be operational this September.” But the agency also said that there were still a lot of details to work out, and offered no guarantee of a September launch date.
Elizabeth May, federal Green Party leader, told media on Budget day, “[New homebuyer incentives are] a big present that the Liberals have wrapped up for us, but it all requires new legislation, so we won’t get to unwrap that gift unless the Liberals are re-elected.”