Does CMHC equity proposal for first time buyers really address housing affordability issues

If you haven’t heard yet, part of the proposed budget announcement was the proposal that, come September, CMHC will provide equity for first time buyers to assist them by reducing the monthly cost of their mortgage with the provision of a larger down payment. On the surface this seems like good news for first time buyers in that the government corporation will provide up to an additional 10% down payment for the first time buyer (5% on a resale home and 10% on a new construction). The restrictions are that the household income for the first time buyers cannot exceed $120k, they must have at least 5% down themselves and the final mortgage amount (including the CMHC insurance premium) cannot exceed 4 times the household income, to a mximum of $480k.

What Does That Mean?

So to be eligible, if household income is $100k, the maximum mortgage would be $400k as an example.  As there was no mention of adjustments to the stress tests, the current regular qualifying parameters for the mortgage itself would still apply. So the impact to the qualifying itself with this new program will be relatively minimal.

There are still details that the government has not advised surrounding the repayment of the government granted equity. For example, on a $400k purchase is it a straight dollar for dollar repayment down the road when you sell or refinance? I.e. if CMHC gives $20k and you sell 5 years later for $500k, do you repay just the $20k or do they share in their stake of the equity growth (in this example their stake is 5%) so would you repay $25k (the initial $20k + the $5k in equity appreciation).   Apparently these details will be made available to us later this summer.

The government seems to think that by providing a higher incentive to new construction purchases for first time buyers (10% vs 5%), the demand for those properties will increase and thus increase the supply of more affordable homes on the market. Some would argue that the qualifying restrictions like the stress test still inhibit actual qualifying ability and as a result won’t have the desired impact and does little or nothing to address other segments of the housing market. 

I’ll leave youto make your own conclusions once we have full details, but as always, I am hear to answer any questions you may have.

Regards,
Damian

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