The federal government’s plan to help first-time homebuyers through increasing retirement fund borrowing and covering a portion of their mortgage is “quite puzzling,” says one expert.
The Liberal’s 2019 federal budget, the last one before the election, introduces incentives meant to help first-time buyers, particularly those in their 20s and 30s, have access to more funds for a down payment. Now, they’ll be allowed to withdraw $35,000 from their RRSP, up from $25,000.
First-time homebuyers whose household income is less than $120,000 will also be eligible to finance a portion of their home purchase through what the government is calling a “shared equity mortgage” — essentially a zero-interest loan — with Canada Mortgage and Housing Corporation.
The new measures come as homes in Canada’s largest cities become increasingly unaffordable. The average price of a condo in Toronto and Vancouver, for example, is more than $600,000, according to their real estate boards.
But whether they’ll actually help this demographic of Canadians is up for debate, said principal broker Vince Gaetano at MonsterMortgage.ca.
“The changes are quite puzzling,” said Gaetano. “I think this budget is designed to make more friends than enemies. It’s a little bit disappointing.”
In terms of the shared equity mortgage, Gaetano described what’s been released about the process so far as “sketchy.”
The federal government said in its budget that homebuyers will be offered a 10 per cent shared equity mortgage for a newly constructed home, and five per cent for an existing home. This means the government has a 10 or 5 percent stake in the home, which will be paid back when the home is sold. The specific details of the program still need to be ironed and will be revealed later in the year.
“These are complex-type programs that will require a lot of work to implement from lenders to the people processing the mortgage payments,” Gaetano said, questioning if insurance rates will be higher for these types of mortgages, whether the owners will be allowed to rent out their home, and how the government will earn back the money if the home is sold at a loss.
“We may see a spike in real estate values as people try to take advantage of the incentives,” he said.
The mortgage and incentive amount cannot be more than four times the home buyers’ annual household incomes. The largest mortgage that a home buyer could have using the program is $480,000 — disqualifying the vast majority of prospective home buyers in Toronto and Vancouver.
In terms of the increased RRSP borrowing cap, Gaetano said, “I think it’s a nice flowery tool that isn’t going to get much traction at all.” …
Source via HuffPost Canada.
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