First-Time Home Buyer Incentive not meeting expectations

The First-Time Home Buyer Incentive (FTHBI) program, announced in the Liberals’ federal budget last spring and launched last September has, so far, not lived up to expectations.

Through the FTHBI, buyers can apply for an interest-free loan from Canada Mortgage and Housing Corporation (CMHC), to be used as a downpayment on buying a home.

The amount of the loan varies, depending obviously on the cost of the home, as well as whether it is a new build or from the resale market. It’s 10 percent on a new home and five percent on an existing home.

The loans are interest free, but must be paid back when the home is sold or after 25 years, whichever comes first.

Some critics of the program say the government is gambling because the loan payback is a percentage of the selling price, which could be lower than the purchase price in some cases.

Other rules of the program include:

• At least one person in the household must be a first-time home buyer, meaning they have not owned a home, or dwelled in a home owned by their spouse, over the last four years. An exception is made for buyers who’ve had a breakdown of marriage or common-law relationship.
• Buyers must have a minimum five percent downpayment saved in order to qualify for an insured mortgage.
• Buyers’ combined household income cannot exceed $120,000. This includes the income of any guarantors co-signing on the mortgage, as well as any rental income generated if part of the home is rented out.
• The buyers’ Mortgage-to-Income Ratio cannot exceed four times their income, including the portion that’s provided by the FTHBI. This means the maximum downpayment for a resale home cannot exceed 14.99 percent, and 9.99 percent for a new build.

When the FTHBI was announced, the federal government said it expected the loans would be worth $1.25 billion over the three-year life of the program. That would work out to an average of $34,722,222 worth of loans per month.

In the first month of the program (as of September 30, 2019), CMHC received 930 applications, approved in the neighbourhood of 700, for a total of $14 million worth of loans.

In mid-November 2019, Evan Siddall, president and CEO of CMHC, spoke at the National Mortgage Conference in Toronto to provide updates on the agency’s programs and policies.

At that time, Siddall said CMHC had approved more than 2,000 applications worth $40 million.

When asked about the lower than anticipated participation rate, he said, “It may be that the reason is because there’s not as grand a problem that everybody says there is,” suggesting existing mortgage policies look after the needs of first-time buyers, including the fact they can buy a home with as little as a five percent downpayment.

At the conference, Siddall said CMHC was going to put the pedal to the metal.

“We’re ramping up, and we’re seeing disproportionate take-up in Alberta and Quebec,” he said, adding that a lender-specific promotion was likely behind the higher applications in Quebec. “Our bet, based on our current run rate, is that it will be about half taken up in the first six months.”

Last week CMHC released an update on the FTHBI, covering the time frame from Sept. 2 to Dec. 9, 2019, which showed it had funded only four percent of its three-year goal.

Over that period of time, the agency received only 3,252 applications, of which 2,730 were approved, for a total funding amount of $51.3 million. Using the government’s initial estimate, the number should have been $104,166,667.

On January 31, Siddall sent a tweet, defending the numbers.

“In addition to CMHC’s challenges in estimating demand for the FTHBI, uneven lender support is a complicating factor,” he said in the tweet. “It may also be evidence that there is less unsatisfied FTHBI demand due to the stress test than people claim. People can always buy less expensive homes.”

One aspect of the FTHBI that is likely holding it back is lack of participation in Canada’s priciest housing markets, Toronto and Vancouver. The number of loans approved in those markets combined is fewer than approvals in Calgary or approvals in Edmonton.

You’d be hard pressed to find a house worth buying in Toronto, Vancouver or even Victoria using the FTHBI guidelines.

Here’s application and approval data from the CMHC update.

By city

By province

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