While more details about the First-Time Home Buyer Incentive were released this week, there remains a glaring problem.
“They confirmed that they take an ownership stake in the property whereby they will participate in both the appreciation or depreciation of the property,” said James Laird, president of CanWise Financial, “but the key issue with the programming continues to be affordability.”
Buyers who use the program only qualify for four times their household income whereas non-participants qualify for 4.5 times their household income. In effect, the First-Time Home Buyer Incentive will handcuff buyers who use it.
The program—which the federal government announced at a press conference this week will be operational September 2—confounds Laird.
“The program actually diminishes the affordability of the group it is meant to serve,” he said.
That flies in the face of a claim made by Jean-Yves Duclos, Minister of Families, Children and Social Development and Minister Responsible for CMHC, who says the program actually reduces mortgage payments.
“Through the National Housing Strategy, more middle-class Canadians—and people working hard to join it—will find safe, accessible and affordable homes. Our proposed measures will reduce the monthly mortgage for your first home by up to $286,” said Duclos in a statement. “This will mean more money in the pockets of Canadians and will help up to an estimated 100,000 families across Canada.”
According to numbers previously provided to MortgageBrokerNews.ca by Ratehub.ca—which Laird co-founded—a household with $100,000 of income that puts a 5% down payment qualifies for a $479,888 home. This leaves a mortgage amount of $474,129 after down payment and the CMHC insurance premium. The household qualifies for a mortgage of 4.74 times their income.
However, if the same household elected to participate in the First-Time Home Buyer Incentive, their maximum premium price drops to $404,858 because it’s the maximum they can afford while keeping the total between their mortgage and the government incentive below four times their income ($400,000).
“The number one issue facing first-time homebuyers is how much they qualify for, not the monthly payment after the home closes, and that’s what this is aimed at,” said Laird. “They qualify for less if they use this program.”