Homebuyers in Canada tend to avoid First-Time Home Buyer Incentive

Initially, the federal government’s First-Time Home Buyer Incentive (FTHBI) was created to provide a homeownership option for those who can’t get financial help for their mortgage down payment from parents.

However, according to iPolitics, first-time buyers have been mostly avoiding the equity-sharing program that was first unveiled in September 2019.

We’re already halfway through the $1.25-billion three-year program managed by the CMHC, and only 14% of funds ($178 million) have been directed towards support for the first-time buyers.

In other words, only 9,804 buyers have benefitted from the program, which is way below 100,000 buyers expected by the government.

As you know, according to the FTHBI, the federal government provides 5% or 10% of a first-time buyer’s down payment. For that, the government gets an equal share in the home’s equity. The government shares increases and declines in value until the loan is paid off after 25 years or when the property is sold.

The report by iPolitics says the most common mortgage value varies from $150,000 to $350,000, and only 4 applications were for a mortgage valued from $450,000 to $500,000.

Last month, the government announced changes to the program allowing first-time buyers in Toronto, Vancouver and Victoria to qualify under FTHBI for home purchases up to $722,000. Meanwhile, the previous $505,000 limit remained unchanged for buyers in the rest of Canada. It should be noted that iPolitics data only goes to March 31, so it doesn’t include any applications that came after the new rules took effect.

Homebuyers in Edmonton showed the strongest FTHBI activity than other cities, with 1,288 successful applications. Calgary followed with 636 applications. Toronto showed only 39 homebuyers qualifications, Vancouver reported 9, and Victoria – only 5.

Quebec province saw the largest number of successful applications (almost 3,800), followed by Alberta with approximately 2,800. Ontario showed 770, and British Columbia reported 342.

It’s no secret that FTHBI was criticized from the very beginning. The opponents pointed to the program’s flaws, mostly because there was no industry consultation. They said FTHBI was a government subsidy for those who can already qualify for a mortgage.

However, one of the main flaws of the program was the fact that most first-time buyers can qualify for a larger loan in case they don’t use FTHBI.

“All qualified borrowers would actually get a larger loan using a traditional 5% down insured mortgage,” – Mortgage Professionals Canada President and CEO Paul Taylor noted earlier. And it’s even after the new rules took effect in May.

According to Taylor, the program doesn’t create new market entrants. “It offers a possibility for those who already qualify, in very specific parameters, to decrease their monthly payments in exchange of home equity,” – he said.

The current participation results show that most first-time buyers are choosing alternative ways to buy a property, tending to avoid sharing their home equity with the government.