The Federal Liberal Government Budget 2019 Imposes Changes to Canadian Housing Market: Particularly Benefiting First-Time Home Buyers.
Are you looking to make your first home purchase in 2019? Have you been anxiously saving your pennies for a down payment on your first home?
The Federal Liberal Government of Canada has officially released its 2019 Budget Plan, and there was a lot of content within this budget. With more than 460 pages, the budget is overwhelming to consider in its full capacity. Among all those budget details though, there were some imperative and interesting changes that impact the Canadian housing market, and particularly first-time buyers who have perhaps been patiently (or impatiently) waiting to purchase their first home.
The Liberals announced last week that the new budget plan will include financing available to first-time home buyers in the Home Buyers Plan. This can mean up to 10% of the purchase price of your first home purchase could be available. This is good news for all those looking to enter the housing market in 2019.
Before getting too excited, though, let’s look closely at the details of this new budget initiative to make sure we understand the ins and outs of what this could mean for your upcoming house purchase.
The funds will be made available through The Canadian Mortgage and Housing Corporation, and are geared to lower the monthly affordability of the mortgage payment, essentially. A few conditions apply:
- The CMHC will provide 10% of the purchase price toward a home that is newly constructed.
- The CMHC will provide 5% of the total purchase price for a home that has been previously occupied, or a previously existing home.
- The program is available to first time home-buyers only. This means it is available toward the purchase of your first home only. (*Exceptions exist – for example: see below).
- Homebuyers are eligible for this incentive through the CMHC if their collective household income is below a total of $120,000.00. The total mortgage and incentive cannot be more than four times the purchasers household income.
- Homebuyers are eligible for the CMHC funds toward their purchase only on purchases requiring mortgage insurance, meaning that the total down-payment on the home is less than 20% of the purchase price.
So, to provide an example of a new construction scenario, and that of a previously existing home:
If a home is priced at $450,000 to be built new, the buyer is eligible for $45,000 through the program. This means if the homebuyer provides a down payment of the minimum 5% ($22,500) of the purchase price and we assume a mortgage interest rate of 3.5%, the total monthly payment would equate $2,220 before the program, whereas with the incentive the 2019 federal budget provides, the monthly payment would be $1,963. The purchaser therefore saves $257/mth.
If a home is purchased for $450,000 as a previously owned home, the home buyer is eligible for $22,500 through the federal budget program. This means that if the homeowner, similarly, opted for a payment of the minimum 5% down ($22,500) with 3.5% financing – the total monthly payment would be $2,220/mth before the program and $2,085 with the new budget in effect. The purchaser therefore saves $135/mth under the new guidelines and incentives.
While this certainly helps first-time home buying Canadians with their affordability month to month, it still remains difficult in the major cities, particularly Greater Toronto (average home price $780,000) and Vancouver (recent average selling price of a home $1.7M). Similarly, in areas such as Southern Georgian Bay, (Collingwood, Thornbury, Blue Mountains, and Meaford), Ontario, where sales continue to increase from 2018 to 2019, and February 2019 sales averaged a cost/home of $507, 391 (according to the Canadian Real Estate Association CREA).
For homebuyers with RRSP’s affordability can be relieved somewhat further as the Liberal budget allows for tax-free withdrawals from RRSP savings for first time homebuyers up to the amount of $35,000 (prior to it was capped at $25,000).
Finally, the Home Buyers Plan imposed by the Liberal 2019 Federal Budget allows “first-time” home buyers to include Canadians who are looking to repurchase a home following divorce or separation (*). If you have already purchased a home, however, are looking to purchase again following marriage divorce or common law separation you could qualify for the new budget incentives.