The Canada Mortgage and Housing Corporation held an official announcement yesterday to release details of its First-Time Home Buyer Incentive (FTHBI).

While officials reiterated how this shared-equity program will help young middle-class Canadian buyers, there were scant new details beyond what has previously been confirmed since the program was first announced in the March budget.

A Recap of the FTHBI First-Time Home Buyer Incentive

• CMHC will contribute 5% of a down payment for the purchase of an existing home, or 10% for the purchase of a new build
• The mortgage must be default insured
• The applicants’ household income must be less than $120,000
• No monthly payments are required, and this amount can be paid back at any time, or upon the sale of the house
• CMHC shares in both the proportionate gains or losses in home value
• The insured mortgage plus incentive cannot be more than four times the participants’ household income (roughly a $565,000 maximum purchase price for someone making a 15% down payment)
• The program will be available to buyers on September 2, 2019
• The government anticipates 100,000 first-time buyers will take advantage of the program over the next three years at a cost of about $241 million.

It was also confirmed on Monday that participants would have to repay CMHC’s 5% or 10% contribution within 25 years, or when the property is sold. The incentive amount could also be repaid at any time prior to that and would not be subject to prepayment penalties.

In all cases, the incentive amount would have to be paid back at current fair market valuation, which would be determined by CMHC using an independent appraisal.

Jean-Yves Duclos, the Minister of Families, Children and Social Development, which oversees the CMHC, said the biggest benefit for first-time buyers is that the incentive would reduce monthly mortgage payments.

“The First Time Home-Buyer Incentive is designed to benefit those who need more assistance with housing costs, middle-class Canadians,” Duclos said. “Thanks to mortgage payments that are more affordable, many families will have hundreds of dollars more each month in their pockets.” Duclos said a family buying a $500,000 house through the incentive would save up to nearly $300 a month in interest payments. CMHC provided a full breakdown of potential savings here.

But Will it Work?

There had been many skeptics of the program since it was revealed three months ago, and yesterday’s official announcement did little to quell the criticism.

The key argument is that while the program is aimed to assist young first-time buyers who have been priced out of the most expensive markets, buyers in Toronto and Vancouver will be hard-pressed to find a property under $500,000.

“We think it’s definitely going to have very regional application,” said Paul Taylor, President and CEO of Mortgage Professionals Canada. “In the two most expensive cities, where we would suggest first-time homebuyers need the most support, this solution is not really going to do that.”

On Twitter, CMHC President and CEO Evan Siddall responded by saying: “No program is going to work as well in higher priced markets. Using 2018 data, 2,300 homebuyers would have qualified in Toronto and 1,100 in Vancouver. Around 25% of home sales in Toronto in 2018 were for homes under $500K and 17% in Vancouver.”

Others point out that buyers would actually be able to qualify for a larger mortgage if they don’t use the FTHBI because of the program’s restriction to those with a mortgage less than or equal to four times their total gross income.

“A qualified borrower making $60,000 a year and putting 5% down, for example, could afford a roughly $269,000 home with a regular default-insured mortgage, but only $253,000 using the FTHBI,” wrote RateSpy.com’s Rob McLister. “That, the ~$565,000 maximum purchase price and the need to cough up a chunk of your home value gains are what will limit the FTHBI’s appeal, especially in our biggest cities.”

Siddall has publicly said the CMHC spent months tailoring a “Goldilocks” design so that the program would help some first-time buyers, but not enough to impact the housing market to an extent that would contribute to rising prices.

Adam Vaughan, a Toronto MP and Parliamentary Secretary to the Minister of Families, Children and Social Development, responded to a question about the program’s application in a high-priced city like Toronto.

“Buying a new home in Forest Hill (is), probably unlikely,” he said. “Buying a home here in Mississauga, absolutely a possibility. And on transit lines, it gets you to jobs right across the GTA.”