Housing experts say good riddance to scrapped federal loan program
CMHC drops convoluted incentive plan aimed at helping first-time homebuyers
The discontinuation of a federal loan that helped cover the down payment on the purchase of a first home in exchange for equity in the property will have little effect on Calgarians, say mortgage brokers.
The Canada Mortgage and Housing Corp. announced Friday the cancellation of the First-time homebuyer Incentive, effective March 21. The program “has been undersubscribed and cannot provide significant impact to address housing challenges, as currently designed,” the Crown corporation said in a note to lenders.
The plan was meant to help firsttime buyers by having the government take on partial ownership of their property.
The government offered a loan of five or 10 per cent of the purchase price that would go toward a larger down payment, with the intended goal of reducing monthly payments.
Under the program, homeowners had to repay the incentive after 25 years or when the property is sold, with the amount owing adjusted to reflect how the value of the property has changed.
The program was hampered in part by eligibility issues, including limits to household income and the size of a mortgage the buyer could take on.
In most of Canada, total borrower income couldn’t be higher than $120,000, while the total borrowing could be no more than four times the qualifying income.
In Toronto, Vancouver and Victoria, which are pricer home markets, the maximum income was $150,000 while the loan was capped at 4.5 times the qualifying income.
Uptake in the program was minimal in Calgary, said Croft Axsen, a broker at Mortgage Connection. Out of hundreds of applications, only two or three people used the program to buy their first house.
“Who wants to be in partnership on the ownership of your house with the government?” Axsen said.
The program didn’t help buyers put together a minimum down payment, and the restrictions meant some borrowers qualified for smaller amounts than they otherwise would, said James Laird, CO-CEO of Ratehub.ca and president of Canwise mortgage lender.
The government-ownership component also added complications to a convoluted program that was poorly thought out, he said.
“It was literally like they sat in a room by themselves, without anyone who understood the industry, and just made up a bunch of stuff that made no sense,” said Laird.
Remi Korent, a Calgary mortgage broker, said only two of his clients bought their first home through this program since its inception.
“When I explained to (my clients) how it worked, most people didn’t really want to participate,” Korent said. “Of the two that I did … it was a very small amount.”
He added another drawback of the program was that it involved extra legal fees.
“And then I just helped the client separate from his spouse and it just threw off the math for the separation agreement, because it’s considered a second mortgage,” Korent said.
CMHC did not immediately provide comment.
The first-time homebuyer incentive was launched in 2019 with a $1.25-billion commitment.
As of the end of 2022, CMHC had committed $329 million representing about 18,500 applications.