There are two items specific for first-time home buyers:
- Increase of Maximum Withdrawal from RRSP
- CMHC First-Time Homebuyer Incentive
Eitan’s General Commentary
On a whole, I don’t believe there is much in this budget to alleviate the supply issues we’re facing – the housing measures are specifically focused on the demand side, without much encouragement or focus on new or affordable housing.
However, the budget does have $10 billion earmarked for 42,500 new purpose-built rental units over the next nine years. This will be through tax breaks to developers for purpose-built housing, and will be for areas with very low vacancy.
What I believe is really needed, and what would be a major boost to supply, is to propose tax breaks or reduce some of the regulatory hurdles for homebuilders for market housing. To follow on that, I think Vancouver’s main issues are due to our municipal government, for too many years, being too scared to deal with the NIMBYers (Not In My Back Yard) on densification of prime neighbourhoods, and the provincial and federal government not being able to work with investors or home builders to alleviate the supply issues.
Increase of Maximum Withdrawal from RRSP
There was a $10,000 increase to the Home Buyers’ Plan (HBP) to a maximum of $35,000, effective immediately.
The repayment for the HBP is still 15 years (straight line basis), with a 2-year grace period.
This is great – the HBP has not increased in 10 years. I welcome this move… but it’s not going to do much on the purchase affordability side. And, many of our first time home buyers are not using the full $25K from their RSPs…
This increased withdrawal limit provides high income earners with a tax break on the additional $10K they would have otherwise NOT put into their RSPs. This does not increase any affordability.
Take someone who has an income of $100,000. If that person had $50,000 in a down payment and put in $25,000 into their RSPs (to be taken out 90 days later), they would save about $8,160 in taxes. Now, if they put an extra $10,000, their savings would increase by $2,820. This is roughly a 28% return on that $10,000 in one year – not too shabby for those with high incomes.
CMHC First-Time Homebuyer Incentive
$1.25 billion has been earmarked over 3 years to provide 5% of the cost of an existing home (resale) and 10% of the price of a newly built home in a “shared equity CMHC mortgage.” This mortgage would be an interest-free and payment-free loan, however the money would have to be repaid upon sale of the property.
This program’s details have not been ironed out yet and more information is expected in the fall.
- Down payment needs to be at least 5%, but less than 20%.
- Household income cannot be over $120,000
- The mortgaged amount cannot be more than 4 times the buyers’ household income.
- The maximum purchase price is $500,000.
$450,000 purchase with 5% ($22,500) down payment. With this new incentive, a borrower could receive up to $45,000 (for a new home) through CMHC. Instead of taking out a $427,500 mortgage, only $382,500. This would lower the monthly mortgage bill from over $2,170 to less than $1,920.
*This may increases affordability by a little over 10% for those who can use this. It is still extremely unclear if this will be the case because we don’t know if the government will factor in the CMHC debt in their calculations. I suspect they won’t, otherwise, there’ll be no reason for this program.
What. The. Heck?
There are wayyy too few details surrounding this. Most notably, it’s unclear how homeowners will have to repay this so-called ‘shared mortgage!’
Will CMHC share in any capital gain (or loss), receiving 5% or 10% of the value of the home upon sale? Another question we have is will borrowers have CMHC fees on the total mortgaged amount or just on the mortgage provided by a lender?
Also, this could be a “BC Home Partnership” loan all over again, in the sense that it was widely unused. We did only three BC Home Partnership loans in the time it was available. However, I think that once more information is presented in the fall, this could be a very nice addition to rural and smaller city communities.
This is not helpful to buyers purchasing properties over $500,000…
So what will this do? I think it’ll push properties that are under $500,000 up to that figure because it’ll increase borrowing ability.
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