The First-Time Home Buyer Incentive (FTHBI) has been modified to improve income qualification, but it’s being lampooned as a cynical ploy for the government to profit off of buyers who have the most trouble getting on the housing ladder.
The changes, first proposed five months ago, raise maximum household income qualification to $150,000 from $120,000, which raises the mortgage amount to $675,000 on a $722,000 property, but the government’s 5-10% contribution towards the buyer’s down payment must eventually be repaid at its appreciated value.
“This mostly seems like the government profiting off homeowner appreciation than much else, primarily because of the restrictive requirement that it be paid in full as a lump sum without any partial payments,” said Laura Martin, COO of Matrix Mortgage Global in Toronto. “As has been pointed out before, under the CMHC Insured Mortgage Program they would actually be able to qualify for more without the government’s assistance of a 5-10% down payment, which actually eats into their equity appreciation because they have to pay it back in full within 25 years.”
Martin added that, while the Canadian government is trying in vain to make the country’s most expensive housing markets of Toronto, Vancouver and Victoria affordable to first-time buyers, the FTHBI could still be useful in the preconstruction condominium market.
“The best use case for prospective first-time homebuyers is with a preconstruction condo or townhouse purchase, where a 10-15% down payment is required,” she said. “In this case, the borrowed down payment may be necessary and the real estate asset will appreciate aggressively enough in a three- to five-year period that the borrowed funds could be repaid by refinancing shortly after closing. Preconstruction units have generally appreciated at 20-30% year-over-year for the last 10 years.”
The incentive was first introduced in 2019, but it doesn’t appear to be very popular. Toronto mortgage firm Tribe Financial hasn’t even come across one file that relies on the FTHBI to date, and Frances Hinojosa, the company’s managing partner, isn’t so sure she’d advise clients to use it anyway.
“My understanding is when the government came out with this, it was to help consumers with affordability, to provide them a share of the property that would reduce monthly mortgage payments, because by not having to make payments on that 5% they have better monthly cash flow,” she said. “But when you get into shared ownership, you’re sharing the gain as well, so if the government gives them 5% of the mortgage amount they have to give them 5% of sale price.
“I wouldn’t blatantly advise my clients against this, but I would first say, “Let’s explore your long-term goals before you consider it.’”
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