Who will really benefit from a new version of the First-Time Home Buyer Incentive?

On Monday, an improved version of the government’s First-Time Home Buyer Incentive will take force.

Almost five months after the changes were offered, the Department of Finance and Canada Mortgage and Housing Corporation (CMHC) have improved the eligibility requirements for homebuyers in Toronto, Vancouver and Victoria.

As you know, the FTHBI is a shared-equity program under which the government provides 5-10% of a first-time buyer’s down payment, sharing all changes in the home value until the loan is paid off. The borrower doesn’t have to make regular payments, but the loan must be paid off in 25 years or when the property is sold.

Here are the changes to the program:

• The maximum eligible household income is raised from $120,000 to $150,000.
• A buyer now can borrow up to 4.5 times their household income (not 4 times, as it was before).

However, these changes apply to buyers only in Toronto, Vancouver and Victoria, while the initial rules of the program remain unchanged in all other parts of Canada.

“Our government admits that making a choice to purchase the first home is a challenge, particularly in the markets showing a sharp prices increase,” – noted Adam Vaughan, Parliamentary Secretary to the Minister of Families, Children and Social Development and the Minister responsible for the CMHC. “That’s why the improvements increase the eligibility of the program in Toronto, Vancouver and Victoria.”

So what do the FTHBI changes mean for potential homebuyers?

The higher maximum household income and borrowing limit mean that first-time buyers can now hypothetically qualify for a loan up to $722,000, while it was almost $505,000 under the initial requirements.

Meanwhile, according to the Canadian Real Estate Association, the average housing price has reached $716,000 in March. Even if we exclude the expensive markets of the Greater Toronto and Vancouver areas from calculations, the national average price will still be as high as $556,828.

The main question here is whether the changes will really help the first-time buyers amid the on-going home prices growth.

“No. The program will not really provide necessary help for the first-time buyers,” – believes Paul Taylor, President and CEO of Mortgage Professionals Canada. “Even with the higher 4.5 times income, all program participants would be able to borrow more with the help of a standard 5% down insured mortgage. The changes will not lead to more market entrants. They will only offer a small possibility to decrease monthly payments in return for home equity to those who already qualify.”

“The government is encouraging first-time buyers to take on less debt and to decrease their monthly payments, but the tradeoff is lower purchasing capacity and government co-ownership,” – he said, adding that the number of Canadians who will really be able to qualify for the new maximum price of $722,000 is be extremely small.