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Canada real estate: First-time homebuyer program challenges

The Canada Mortgage and Housing Corp. is ending its First-Time Home Buyer Incentive (FTHBI), and not everyone is surprised by the move.

Vancouver realtor Steve Saretsky says, ultimately, there just wasn’t enough interest.

“I think it was kind of, somewhat of a failed program or experiment to start with,” he told CityNews Friday.

“It was hard for people to qualify under the program. At the same time, I think there was a lot of skepticism about basically sharing a home with the government, right? I mean, you’re giving up five to 10 per cent of the equity stake.”

The program has been criticized by many as being unhelpful.

The plan was meant to help first-time buyers, with the government offering a loan of five or 10 per cent of the purchase price that would go toward a larger down payment, with the intended goal of reducing monthly payments.

Under the program, homeowners have to repay the incentive after 25 years or when the property is sold, with the amount owing adjusted to reflect how the value of the property has changed.

Total borrower income couldn’t be higher than $120,000, or $150,000 in places like Vancouver or Victoria, while the total borrowing could be no more than four times the qualifying income, or 4.5 times in the pricey cities, including Toronto.

Saretsky says in a market like Greater Vancouver, where prices generally rise, people didn’t necessarily want to give up any equity stake.

“I think it was a program where you could see more uptake in more affordable cities in Canada,” he told CityNews. “But when you get to these really expensive markets, like Vancouver and Victoria, it just wasn’t a very successful program.”

In addition to challenges around qualifying, he notes mortgage rates are also still relatively high for many people, even with the incentive.

Down payments are also a big issue.

“I think they were just looking to try to help first-time homebuyers get into the market. And, ultimately, the hardest thing for a first-time homebuyer is not necessarily the mortgage payments but obviously saving that down payment,” Saretsky said. “So, the idea was, of course, the government would lend you part of that down payment through an interest-free loan and then, basically, you’d pay the government back when you went to sell five, six years from now, and the government would basically take a portion of the profits as well.

“I just think it was a hard program to market.”

The first-time homebuyer incentive was launched in 2019 with a $1.25-billion commitment. As of the end of 2022, CMHC had committed $329 million representing about 18,500 applications.

Now, CMHC says the deadline for new or updated submissions to the program is midnight eastern time on March 21.

First Home Savings Account success: CMHC

In a statement to CityNews, CMHC says the FTHBI was “initially expected to sunset in fiscal year 2021-22.” However, an extension to 2025 was announced following the 2022 federal budget.

“After a review of federal housing plans in light of the current housing situation, the federal government decided that the First Home Savings Account (FHSA) is a better tool to help first time homebuyers buy a home. FHSA is a registered savings account that helps Canadians buy their first home by contributing up to $8,000 per year for their first down payment,” CMHC explained in its email, adding more than half a million Canadians are already using the FHSA.

“The changes do not impact homebuyers that were already approved for the FTHBI. Homebuyers would have received the confirmation of approval from their lender and been provided with documentation and instructions related to the program.

It’s unclear if the agency plans to replace the program with something else. However, Saretsky says he doesn’t anticipate anything new for now.

“I know that CMHC seems to be, in recent years, a little more hesitant toward sort of promoting more demand in the housing market,” he said. “I wouldn’t be surprised if there’s nothing new coming after this.”

CMHC tells CityNews that “refocusing this funding will also allow the government to focus on other impactful policy areas.”

-With files from The Canadian Press

Read more at vancouver.citynews.ca

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