First-Time Homebuyer Incentive Terminated

The initial promise of the first-time homebuyer incentive seemed like a beacon of hope for many prospective homebuyers grappling with the challenge of saving up for a down payment. Regrettably, the program’s execution left much to be desired, resulting in suboptimal outcomes for the majority of applicants. Consequently, the Canada Mortgage and Housing Corporation (CMHC) has officially terminated the program, with the cutoff for new applications set for March 21, 2024.

Understanding the First-Time Homebuyer Incentive:

The CMHC’s first-time homebuyer incentive was established to alleviate the monthly mortgage burden for first-time purchasers. Introduced in 2019, the initiative provided newcomers to the housing market with an interest-free government loan (the incentive) intended for their down payment. This loan, amounting to a maximum of 10 percent of the property’s purchase price, enabled the government to acquire partial ownership of the property in exchange for augmenting the down payment. By bolstering the down payment, the program aimed to reduce the size of the buyer’s monthly mortgage payments, thereby easing financial strain.

Repayment of this 5-10% loan was scheduled over 25 years or upon the sale of the property, whichever occurred first. However, what some overlooked was that participants were essentially entering a shared equity agreement with the government. This meant that if the home appreciated, the amount owed to the government also increased proportionately, as they retained a 10% ownership stake. Additionally, any appreciation in asset value (capped at 8 percent) would be shared with the government.

Reasons for Discontinuation:

While initially promising, the first-time homebuyer incentive failed to meet anticipated results and benchmarks over the years. Despite a $1.25 billion commitment upon its launch in 2019, by 2022, the CMHC had only dispensed $329 million, benefiting a mere 18,500 applicants nationwide. The program’s limited reach was a significant contributing factor to its demise.

A primary challenge plaguing the initiative was its stringent eligibility criteria. Imposing restrictions on household income and mortgage size proved prohibitive. Applicants had to demonstrate a combined household income below $150,000 in Toronto, Vancouver, and Victoria, or $120,000 elsewhere in Canada. Given escalating living costs and inflationary pressures, many Canadians outside these thresholds could have greatly benefited from the program.

Moreover, there existed a cap on mortgage size, limiting it to 4.5 times the qualifying household income. This translated to a maximum mortgage of $675,000 in Toronto, Vancouver, and Victoria, or $540,000 elsewhere. With housing supply shortages exacerbating the situation, finding a suitable home within these price limits posed a formidable challenge. Despite its theoretical appeal, the CMHC’s incentive program offered little relief to homebuyers in Canada’s priciest housing markets.

Furthermore, apprehensions regarding the equity agreement deterred potential applicants. Many were uncomfortable with the idea of the government retaining a stake in their home and were wary of the uncertainty surrounding repayment obligations due to shared appreciation. Upon realizing the implications of entering a co-ownership arrangement with the government, many applicants withdrew from the process altogether.

Given these challenges, the federal government announced the discontinuation of the program, setting a deadline for new or resubmitted applications by midnight ET on March 21, 2024.

Alternatives for First-Time Homebuyers:

Despite the termination of the first-time homebuyer incentive, several avenues remain available for prospective homebuyers:

1. RRSP Home Buyer’s Plan: This initiative permits tax-free withdrawal of up to $35,000 from an RRSP for a down payment on a new or resale home. Repayment to the RRSP is required within 15 years, with the initial payment due no later than two years post-withdrawal.
2. First Home Savings Account (FHSA): Introduced in April 2023, this registered plan assists first-time homebuyers in saving for a down payment. Contributions are tax-free (subject to annual and lifetime limits), and withdrawals incur no taxation.
3. Local Assistance Programs: Many municipalities offer incentives or assistance programs aimed at stimulating lending activity or addressing housing market imbalances. Exploring these local options can provide additional support.
4. Get Pre-Approved: Seeking pre-approval can help determine an appropriate down payment size. A M Factory Mortgage Broker can facilitate this process, offering favourable rates and terms for up to 120 days, enabling you to identify affordable mortgage options and streamline your home search.