The Canada Mortgage and Housing Corporation (CMHC) has discontinued the First-Time Home Buyer Incentive (FTHBI), according to a statement on its website.
CMHC’s statement said the deadline for new or updated FTHBI submissions is March 21 at midnight eastern time. Applications submitted after the deadline will “undergo a manual review,” the statement said, and requests for manual reviews will need to be submitted by March 25, also at midnight eastern time. CMHC said that “no new approvals will be granted” after March 31.
“It was argued that the program was restrictive, primarily around the maximum allowable income levels as well as maximum property values, which, was not ideal in locations where the average purchase price exceeded this threshold,” Daniel Vyner, the principal broker at DV Capital, said in a statement to BNNBloomberg.ca Friday.
“With data suggesting that the program's performance did not meet its target, the reality is, that there is now one less consumer-driven product designed to help Canadians enter the housing market, a task that seems out of reach for a segment of Canadians, especially amidst real estate, interest rate and economic uncertainty.”
According to figures from the federal government’s National Housing Strategy website, the program had a budget of up to $1.25 billion, with around $408.92 million utilized. The program had a target of assisting up to 100,000 homebuyers, with about 22,826 partaking in the initiative.
In a statement to BNNBloomberg.ca Friday, a CMHC spokesperson said that the program was previously expected to expire in the 2021-22 fiscal year but had been extended in the 2022 budget.
“After a review of federal housing plans in light of the current housing situation, the federal government decided that the First Home Savings Account (FHSA) is a better tool to help first time homebuyers buy a home,” the statement said.
According to CMHC, over 500,000 Canadians are using an FHSA account and refocusing funding will allow the government to “focus on other impactful policy areas.”
James Laird, the co-CEO of Ratehub.ca and president of CanWise mortgage lender, said in a statement to BNNBloomberg.ca Friday that the policy was marked by significant flaws.
“Allowing all consumers to amortize their mortgage over 30 years has always been a better way to help first-time home buyers and would be an effective replacement for this program. If only the federal government had paid attention to a similar program failing in B.C. years prior, they would have saved taxpayers millions,” he said.
The federal government launched the FTHBI in September 2019 to lower monthly mortgage payments for new homeowners without increasing their down payment costs.
Penelope Graham, the director of content at Ratehub.ca said in a post Friday that the incentive offered qualifying home buyers an interest-free loan of between five and 10 per cent “in exchange for the government sharing in the home’s equity.”
“The purpose of the program was to give buyers’ down payments a boost, resulting in smaller mortgage payments. The buyer would then need to repay their FTHBI loan – plus the additional equity percentage – whenever they sold the home, or at the 25-year ownership mark,” Graham said in the post adding that the loan could be paid off without penalty at any point.
She highlighted that the FTHBI “struggled to find its footing” within the Canadian real estate market and was perceived as too limiting for homebuyers in larger cities, with home value caps that some saw as unrealistic in Canada’s larger markets.
“To qualify, buyers had to have annual incomes of $120,000 or less, with the combined incentive and mortgage capped at four times the income of the buyer,” Graham said.
“While this was extended to $150,000 for Toronto, Vancouver, and Victoria in May 2021, the program could still only be utilized for insured mortgages, with a purchase price of under $1 million.”
‘Owning a home with the government’
Laird said that even if a prospective buyer could qualify, “owning a home with the government still does not make any sense.” He added that under the program, the government would stand to benefit from an appreciating home value while not paying for maintenance like property taxes or insurance.
Other issues with the program, according to Laird, included requirements for borrowers to come up with enough money for a minimum down payment and actually “reduces the purchase price someone can qualify for by about six per cent.”
Additionally, Laird highlighted a requirement that the incentive be repaid in 25 years, or if the property is sold. He said this brings uncertainty if a homeowner stays in the property for 25 years or longer.
“Will the government force the homeowner to sell, or will they have to get a new mortgage on the property to pay the government back their share? These will be people nearing retirement age, and close to paying off their mortgage, but the government's ownership stake in their house will remain,” he said.
Clay Jarvis, a spokesperson for NerdWallet Canada, said in a statement to BNNBloomberg.ca Friday that the program was “never going to appeal to many people” due to the shared equity agreement with the federal government.
"Even though the Incentive failed, I hope it doesn’t discourage the government from trying innovative ways to get people into houses of their own. Canada is never going to build enough homes to keep up with demand, so finding ways to help first-time home buyers afford what’s available needs to be a priority,” Jarvis said.