To help make homeownership more affordable for first-time home buyers, the 2019 Budget introduces the First-Time Home Buyer Incentive. The finance department hopes legislation for this new program will pass in time for a September launch.
Home Buyers’ Plan (HBP)
The modernization of the HBP allows first-time buyers to make a single withdrawal from a Registered Retirement Savings Plan (RRSP). The withdrawal limit is increased from $25,000 to $35,000. So far, more than 2.9 million Canadians have used the HBP.*
Moreover, access to this program is expanding to people who are divorced or separated from a common-law partner. In cooperation with the Canadian Real Estate Association (CREA), Quebec real estate brokers have been requesting this intervention for years.
In addition, the federal government’s efforts to make housing more affordable is very good news, particularly for providing financial support to first-time buyers.
The Canada Mortgage and Housing Corporation’s (CMHC’s) First-Time Home Buyer Incentive will allow new buyers to take out a mortgage in which the CMHC contributes 10% of the purchase price for a new home or 5% for an existing home. This incentive will be offered to first-time buyers who have an annual household income of less than $120,000. This will undoubtedly be very positively welcomed by the millennial generation. Buyers would see their monthly mortgage payments reduced, and the government would get its stake back when the house is later sold.*
Rental Construction Financing Initiative
As for the Rental Construction Financing Initiative, there will be additional funding of $10 billion over nine years.*
Mortgage stress test
With respect to the mortgage stress test and the ability to absorb a hike in interest rates, the federal government states it will closely monitor the effects of this policy and may make changes if economic conditions justify it. A stress test for any potential home buyer is issued by their lending institution. In order to qualify for a preferred rate, the buyer must qualify for the posted rate which is higher. Note that in stable and balanced markets, these stress tests represent an additional obstacle, particularly for millennials wishing to own a home.*
However, this could have a more negative than a positive impact because the demand may drive the prices even higher. These new changes will be welcomed in cities like Vancouver and Toronto. It will have less of an impact in Quebec since we are not experiencing the same kind of market as they are.
*Source: Quebec Professional Association of Real Estate Brokers