The Government of Canada released its 2019 Budget – the last one before the next federal general election slated for October 21, 2019.
The budget includes several initiatives focused on first time home buyers and addressing the lack of housing supply for both ownership and rental purposes. While the Jesse Davies Team will continue to investigate the details of each initiative, here are the highlights:
- First Time Buyers Incentive – The newly announced incentive would allow eligible first-time home buyers who have the minimum down payment for an insured mortgage (5%) to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corporation (CMHC).
- CMHC would offer qualified first-time home buyers a 10 percent shared equity mortgage for a newly constructed home or a 5 percent shared equity mortgage for an existing home.
- The incentive would be available to first-time home buyers with household incomes under $120,000 per year. At the same time, participants’ insured mortgage and the Incentive amount cannot be greater than four times the participants’ annual household incomes.
Borrowers need 5% down, this program would lend an additional 5% towards the mortgage, an additional 10% on new construction homes.
As per Dominion Lending Center Elevation Mortgage press release:
“On a $400,000 new construction home, the down payment required would be a minimum of $20,000 with an additional $40,000 applied towards the mortgage through this plan. Instead of having a mortgage of $380,00 the mortgage will be $340,000 on average decreases the monthly payment from $1970 to $1750.”
- The twist… the $40,000 is repayable to CMHC when the home is sold, it’s a “loan” that lowers the mortgage payment it’s not permanent equity in the home, but that word EQUITY is in the title! Not really equity, more of a temporary loan that will help to lower the monthly mortgage payment by reducing the total mortgage amount.
This program lowers the monthly mortgage payment for these home buyers by decreasing the total mortgage amount. In the absolute best case, at the max purchase price of $505,00 the monthly payment will be lowered by approximately $125 a month. This reduction in mortgage payments will have a slight contribution to the debt servicing and approval levels.
- Home Buyers Plan Withdrawal Increase. Proposal to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000 of their RRSP.
- Increasing Housing Supply.
- Help build 42,500 new housing units across Canada, with a particular focus in areas of low rental supply, through an expanded Rental Construction Financing Initiative. Budget 2019 makes available an additional $10 billion in financing over nine years, extending the program until 2027–28.
- Invite communities and other groups to propose initiatives that break down barriers limiting new housing. This new Housing Supply Challenge will run through the Impact Canada Initiative, with funding of $300 million.
- Creation of Expert Panel on the Future of Housing Supply and Affordability, jointly established by the Government and the Province of British Columbia. CMHC will invest $4 million over two years to support the Panel’s work and $5 million over two years for state-of-the-art housing supply modelling and related data collection.
- Tackling Tax Non-Compliance and Money Laundering in the Housing Market.
- Creating four new dedicated real estate audit teams at the Canada Revenue Agency to monitor transactions in the real estate sector.
Strengthening the enforcement framework by improving monitoring of private sector partners and collaborating with government leads in order to deter financial crime in real estate, including mortgage fraud and money laundering.
Exploring opportunities to improve data sharing on real estate purchases between the federal government and British Columbia to inform enforcement efforts on tax compliance and anti-money laundering. As part of this initiative, the Government will provide up to $1 million to Statistics Canada starting in 2019–20 to conduct a comprehensive federal data needs assessment to further streamline data sharing and monitoring of purchases of Canadian real estate.
The 2019 Federal Budget in its entirety can be found here.
Jesse Davies Real Estate Agent Thoughts
Thumbs DOWN! While some of these changes will help, this is more of a band-aid with more tax dollars propping up a depressed economy adding to our already out of control deficit. We are left sitting here wondering where the adjustment to 30-year amortization or reductions to the stress test which was forecasted to change. The new home market will see a positive impact with the addition of 10% of the purchase price for homes under $505,000.
Note, the home buyers will need to qualify for the program, must be eligible under the stress test, and must be prepared to repay the equity provided when the home sells in the future; it still isn’t clear if they will be responsible for repaying this loan from taxpayers only or be responsible for paying a portion of appreciation if the home goes up in value.
If you have any questions about what this means for you, please reach out to us directly at 403.969.2363 or email [email protected] or visit us online at www.jdrealestatecalgary.ca