First-time home buyer incentive ‘a flop’ with minimal take-up

Federal program so far used by only 29 home buyers in Metro Vancouver and four in Victoria, but CMHC argues it will pick up

The federal First Time Buyer Incentive (FTHBI), introduced in September 2019, has so far been used by only 29 buyers in Metro Vancouver and fewer than 3,000 first buyers across Canada.

Calling the program “a flop,” Sherry Cooper, chief economist at Dominion Lending Centres, noted that total funding of $55 million was “less than a stellar start” given the FTHBI’s $1.25 billion three-year target.

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Cooper added the incentive has been introduced while the federal mortgage stress, which requires all homebuyers to qualify for mortgage interest rates higher than what is actually available, is in effect.

The incentive’s price ceiling also makes it hard for buyers to qualify in some big cities, she added. The FTHBI currently caps household income at $120,000, making the maximum eligible mortgage value approximately $480,000, a price that is rare in Metro Vancouver, even for condominiums.

The shared-equity incentive provides a no-payment loan equal to five per cent of the purchase price on a resale home, or 10 per cent on a new-build home, for up to 25 years, or when the home is sold. When the agreement ends, the buyer pays the government back the same percentage, based on the then-current value of the home – not the amount of the incentive received.

Canada Mortgage and Housing Corp. (CMHC) data released to Western Investor on January 31 shows that in Metro Vancouver the program received 45 applications for the program but only 29 were approved, with an average loan of $18,000, representing a home price of approximately $350,000. Only four applicants were approved in Victoria and just 84 in the rest of the province. This is the lowest level for any province east of the Atlantic region during the last four months of 2019.

Sharing in a home’s appreciation could be a disincentive for Vancouver-area buyers. For example, if a $350,000 condo increased by the same amount – 67 per cent – in the next five years as it did in the last five years in Metro Vancouver, and the owner sold, they would have to pay back $29,225, not the $18,000 borrowed.

CMHC figures show the largest take-up for the FTHBI was in Montreal, where 557 out of 654 applications were approved with an average incentive loan of $16,000.

In Greater Toronto, 109 out of 145 applicants were approved for an average loan of $20,000. The city of Edmonton had the second-highest first-time homebuyer applications approved, with 375 buyers receiving an average loan of $24,000.

In an emailed statement, a CMHC spokesman defended the program.

“The First-Time Home Buyer Incentive has been available for only four months, during the fall and winter seasons, which are slow for homebuyers. As the busier spring and summer seasons approach, we expect the number of homebuyers who can access the incentive to increase significantly,” stated Leonard Catling, senior officer, media relations with CMHC.

In 2019, the percentage of Canadian first-time homebuyers fell to 47 per cent of all buyers, down from 51.5 per cent a year earlier, according to the Canadian Real Estate Association, which blames the decrease on the effect of the national mortgage stress test.

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