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Update on CMHC’s First-Time Home Buyers Incentive

Details have been few and far between on the government’s new First-Time Home Buyers Incentive (FTHBI) since it was announced in last month’s budget. But CMHC has finally provided a little more clarification.

In a statement released on its website, the Canada Mortgage and Housing Corporation (CHMC), which will administer the FTHBI, acknowledged that, “we still have work to do. While we can’t yet share all program specifics, we can nonetheless elaborate on the program’s intent and some of the rationale behind its design.”

CMHC noted that some of that work will involve consultations with lenders and other industry stakeholders “to make sure the program works as intended.”

The program will see the CMHC provide 5% of a first-time buyer’s down payment for the purchase of existing homes, or 10% for the purchase of a new build. The mortgage must be default-insured.

Among the criticism levelled against the FTHBI is that the maximum purchase price permitted under the programnow confirmed at $505,000won’t do much to assist first-time buyers in the country’s largest marketsVancouver and Torontowhere prices are significantly higher.

“Despite the income and borrowing limits, we are confident this program can work in all markets, including Vancouver and Toronto,” CMHC countered in its statement. “The average insured home in Canada is worth $284,000, less than the national average house price of $470,000 and this program applies up to a house price of $505,000, assuming a 5% down payment. However, we shouldn’t confuse market average prices ($1 million in Vancouver and $770,000 in Toronto) with starter home prices.”

The agency noted that 23% of transactions in the Toronto area are for under $500,000, and that 10% of Vancouver purchases are under that threshold.

CMHC also said it’s difficult to estimate what the uptake for the program will be like once it’s rolled out in September, but that “based on last year’s activity…more than 2,000 homebuyers in Toronto would have been eligible for the FTHBI and over 1,000 in Greater Vancouver.”

While many details are yet to be worked out over the coming months, CMHC summarized some of the intents and benefits of the program:

  • A way to assist first-time homebuyers without adding to their financial burden.
  • No monthly payments.
  • The program will require borrowers to meet minimum insured mortgage down payment requirements, “ensuring they are invested in their purchase.”
  • While aimed at first-time buyers, the program will result in freed up rental supply and will thus ease pressure on rents, CMHC says.
  • The cost of the program is capped at $241 million over three years. It is also limited to a maximum combined income of $120,000 and total borrowing limited to four times income.

The agency also argued that the FTHBI is more desirable from a housing affordability perspective compared to some of the other policy changes many had been calling for, including tweaks to the mortgage stress test.

CMHC said it doesn’t expect the FTHBI’s inflation effect to be beyond a maximum of 0.2-0.4%.

“Limiting house price inflation will keep housing more affordable, more so than some of the other suggested policy and regulatory changes,” CMHC’s statement said. “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.”