Positive Changes coming to CMHC First Time Home Buyer Shared Incentive Program.
Is It Enough? Does It really Help? Our Takeaway – Not Even Close.
Starting May 3, 2021, the Federal Government will be expanding the First Time Home Buyer Incentive program to enhance eligibility in Toronto, Vancouver and Victoria.
So what are the changes?
-The maximum total qualifying annual income will now be $150,000, which is an increase from $120,000.
-An increased total borrowing amount of 4.5 instead of 4.0 times their qualifying income.
This is good news for first time homebuyers in Victoria with rising prices in today’s market. With these changes, a couple making $150,000 per year will be able to borrow up to $675,000, an increase from $480,000 under the current guidelines.
The maximum purchase price under the new expanded rules is $725,000, with a $50,000 downpayment, and an incentive amount of $36,250 (5%).
Our take on the changes: a step in the right direction, but the program still lacks vision and accessibility for those that really need it.
Despite the positive changes, the program rules remain vague, and the repayment terms are confusing. The program can be especially detrimental if the value of the subject property increases quite a bit, as this is a shared equity program. It is generally unclear as to how the value of the home may be determined when repayment is due (except in the case of a sale). Ports and refinances are not allowed under the program.
One big problem with the program is that the maximum borrowing amount is still constrained by the income factor. Most regular couples have combined incomes in and around $80,000 to $120,000 annually, limiting their maximum loan amounts to $360,000 and $540,000 respectively. This program does little to help these people get into anything but a condo. The program is virtually useless for single income earners who may be earning $40,000 to $60,000 per year, with loan amounts maxing out at $180,000 and $270,000 respectively. So, for a person earning $60,000 per year, and a 5% downpayment, the maximum purchase price under the program is $285,000. Very limiting, to say the least.
I played around for quite a while with the shared equity calculator on the CMHC website. Even for me, a professional in the field, figuring out the maximums available for different incomes was difficult and took a few tries. Try it yourself (link to CMHC at the end of my article).
Despite the confusion surrounding the program, increasing the program maximums for Canada’s more expensive markets is a step in the right direction. However, my main issue is that this program is still only available to those who already have a minimum downpayment. What about those who don’t have the minimum downpayment? They are left out in the cold.
Consider this – we have many people approach us with $10,000 to $20,000 in savings. For anyone, saving this amount is an achievement and shows good financial responsibility. However, $20,000 in savings is not enough for a downpayment on any property above $400,000. Despite many people working hard, saving money, raising families, and being great contributors to society, I have to send them away, saying they just have to save more money. I feel bad when I cannot offer an executable plan to these people, except to say, “save more money”.
So how much more can someone save in 1 or 2 years? And with prices skyrocketing, how much more are these people going to have to spend (and subsequently save) in order to buy a property in another 1 or 2 years? Rents also keep going up, making it even harder to save. It’s a vicious cycle for many people, and ultimately, many of these people will stay renters forever. It’s maddening for those who are trying very hard to save and get into the market. Ownership remains virtually impossible for a huge group of people that can only save a little at a time and cannot come up with the minimum amount required for a downpayment.
Programs such as this are supposed to be easy to understand, easy to implement, and with very clear repayment terms. This program is lacking in all three areas. Most of all, the program does nothing for a vast portion of Canadians who are stuck renting. It feels like this program was created without really considering the needs of the market. What our country really needs is a simplified program that helps hard working people achieve their minimum downpayment requirement. Then we might really see the difference that CMHC could make in helping more hardworking Canadian’s achieve homeownership.
For more information on the program, visit CMHC online, or drop us an email and we can help calculations and strategy.