Purchasing a home has been a challenge for hopeful buyers in recent years, but help is on the way. The 2019 Federal Budget unveiled several planned programs aimed at helping buyers make their first step on to the real estate ladder.
The programs include:
- A $1.25 billion shared-equity scheme that could see the CMHC kick-in up to 10 percent of the purchase price of a home, and
- An increase in the amount that can be taken from a buyer’s RRSP as a down payment
How Did We Get Here?
As the real estate industry continues to grow, two factors have negatively impacted the ability of Millennials and Generation Xers to buy their first home. In the past 15 months, the Bank of Canada raised the key policy rate five times as the Canadian economy gained steam on the back of rebounding energy prices and strong consumer spending.
At the same time, a new mortgage stress test made it more difficult for many consumers to obtain a mortgage.
Combine those trends with upwardly spiralling prices in highly desirable markets and the resultant spike in home affordability levels dampened the purchasing power of many new-to-market home buyers. In 2019, sizzling demand in Toronto and Vancouver, for instance, have moved home prices way beyond the reach of all but the most well-heeled mortgage seekers.
Now relief comes in the form of new incentive packages that should take effect in September 2019, provided the pending legislation clears the required hurdles in Parliament and the Governor General's office.
The CMHC equity-split program
We covered this program in detail on budget night, and you can click here for more details on the CMHC co-payment for first-time home buyers.
In short, first-time buyers with a combined household income of $120,000 or less will benefit from a $1.25 billion subsidy program. It will see crown corporation, the Canada Mortgage and Housing Corporation pay either 5 or 10 percent of the price of a new home as a downpayment. The amount will be paid back on the sale of the home, or when the mortgage is paid off.
Along with the financing assistance, which must be paid back by the borrower, the proposal also calls for greater dollar amounts to be tapped from Registered Retirement Savings Plans (RRSP). New limits on RRSP withdrawals for first-time homebuyers are proposed to increase from $25,000 to $35,000 for individuals and a cap of $70,000 for couples. “We’re exactly dealing with the challenge people face in getting into a new home,” according to Finance Minister Bill Morneau. The ministry must balance the risk of overstimulating the economy by providing greater opportunity for would-be property owners.
What about the stress test?
Many observers felt the policymakers would loosen the reins of the controversial mortgage stress test, which requires applicants to theoretically have the income to pay back mortgages at 2 percent beyond current market rates.
Other analysts argue that the move will spur some Canadians to incur more debt than they can feasibly service. Regardless, a couple of well-aimed arrows have been launched at the growing dilemma faced by younger homebuyers with household incomes of less than $120,000 who have been largely on the outside looking into the home market.
Time to buy?
If you’re one of the Canadians hoping Tuesday’s announcements will help ou get on the housing ladder, you can search and compare mortgage rates at Rates.ca.