The new First-Time Home Buyer Incentive was rolled out by the federal government on September 2 to help buyers get a foothold on the property ladder – but a new analysis from Zoocasa finds that, based on average home prices, few Ontario home buyers would qualify for the program – Ontario real estate is simply too expensive.
Based on the Incentive’s maximum income and mortgage criteria, buyers who use the incentive must purchase a property that’s less than $505,000, a price more likely to be found in the prairie and maritime provincial cities. Sold prices in Toronto were, for example, $806,755 in July.
In fact, the study identified just six cities in Ontario that would qualify, as all have homes with an average price of under $500,000: the Niagara Region, Ottawa, London, Windsor, Sudbury, and Thunder Bay. But bigger, more central cities with complex economic landscapes like Hamilton, Kitchener, and Toronto are left out.
How Does the FTHBI Work?
The First-Time Home Buyer Incentive program works by loaning buyers a second mortgage in the form of a 5% down payment on a resale home, and 5% or 10% on a newly-built one. But instead of collecting interest, Ottawa gets a share in the home’s value when it is sold, or the mortgage matures. For example, if the value of the home increases over that period, the payment owed to the government will increase by the same percentage. But if the home loses value, then the payment will decrease.
It’s a unique idea and demonstrates Ottawa’s confidence that Canadian markets will appreciate over the long term. It also demonstrates that Ottawa wants to lower the monthly burden on lower-income, first-time home buyer households. By contributing a portion of the down payment, buyers will be able to get a smaller mortgage from a bank and thus have less interest and principal to pay every month.
But the criteria is so narrow as to help only a specific portion of the population.
To qualify, a household must have at least one member who is a first-time home buyer, must make a combined income of less than $120,000 a year, must have already saved a 5% down payment, and must have a mortgage-to-income ratio less than four times their income. This conservative criteria effectively leaves out anyone who wants to buy in Canada’s major cities, where the vast majority of the population lives, and needs to live because of work. But residents of Calgary, Edmonton, Montreal, Saint John, Halifax may find the program useful.
To see the full list of qualifying cities, check out the infographic below:
Zoocasa is a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings at zoocasa.com or download our free iOS app.