The federal government says thousands of Toronto-area families could get a hand onto the property ladder under a new shared-equity mortgage program even though it limits the maximum eligible home value to $560,000 — a tough price point to hit in the Toronto region.
The First-Time Home Buyer Incentive can lower monthly mortgage payments on a $500,000 home by as much as $300 a month, said Minister of Families, Children and Social Development Jean-Yves Duclos in Mississauga on Monday.
Starting Sept. 2, first-time buyers with a minimum down payment for an insured mortgage and a household income of $120,000 or less can qualify for an incentive of 5 per cent on a resale home or up to 10 per cent on a new construction home.
The loans are interest free and can be repaid any time within 25 years or upon the sale of the home. Repayment must be in a single lump sum.
“Even here in Mississauga and Toronto, first-time homebuyers will have many starter home options. The savings will be significant,” Duclos told a press conference at a development site surrounded by the condos of Mississauga’s rising downtown.
The average price of a resale condo in the GTA was $590,876 in May, according to the Toronto Real Estate Board. New construction condos sold for $758,585 on average in April, according to the Building Industry and Land Development Association.
The federal Liberal government expects the $1.25-billion shared-equity incentive funds, announced in the March budget, to help about 100,000 first-time buyers over the three-year life of the program.
By adding an additional incentive for new construction homes, the government is encouraging development and preventing the housing market from overheating in high priced markets such as Toronto, Duclos said.
“If you facilitate the purchase of new homes by young, middle-class Canadians then apartments will be in lower demand and that means the price of rental will also be kept more affordable,” he said.
A $500,000 home, with a 5 per cent down payment of $25,000 and an insured mortgage of $475,000 ($494,000 including the insurance premium), would normally cost $2,473 a month. With the addition of the incentive that payment is reduced to $2,187. That translates to a saving of $286 a month or $3,430 a year, according to the government.
Some mortgage industry representatives expressed doubt about the effectiveness of the program that limits the income qualifications of applicants and the mortgage amount to four times their household income.
CanWise Financial president James Laird said many families would qualify for a mortgage amount of 4.5 per cent to 4.7 per cent times their income outside the program.
A household with $100,000 and a 5 per cent down payment would currently qualify for a home valued at $479,888 with a $2,266 monthly payment, he said. A participant in the government program reduces the maximum amount that same consumer could pay to $404,858, he said.
Qualified buyers won’t pay interest on the government portion of the mortgage but the repayment percentage is based on the home’s value at the time. So the buyer pays more if the home’s value has appreciated, less if the value declines.
Parliamentary secretary and Toronto MP Adam Vaughan said the incentives will help buyers who earn too much to access affordable housing and those who don’t have enough to access market-priced housing.
“Buying a new home in Forest Hill — probably unlikely. Buying a new home here in Mississauga — absolutely a possibility and on transit lines that get you to jobs right across the GTA,” he said.
Catherine Pascarel, a self-employed mother, lives with her husband and their 7-year-old daughter Victoria in a one-bedroom apartment in North York who attended the announcement, said they are actively looking to buy.
“For the last five years we’ve been scrambling for a little bit of money we can put aside so we can put it down,” she said.
She thought they might benefit from the program, thought she said they will look outside the city.
“My priorities are a good school for (Victoria) and not necessarily something that’s right in the urban area. So we’re going to be looking at something further north,” she said.
Samantha Prescott, 25, has saved about $20,000 toward a home by continuing to live with her parents.
“They’re wonderful but I’m just getting at that age when I need my own space,” said the Mississauga hair stylist. She attended the announcement and said she also thought she might benefit from the program.
“It is a struggle to even find an apartment that I can afford to purchase by myself. Even rent I can’t afford. They seem to be all quite expensive,” she said.
Duclos defended the mortgage stress test introduced in January 2018 that has been accused of lowering the buying power of some purchasers. He said the government is committed to addressing the housing affordability challenge but also making sure the market remains stable.
“We need to have a housing market that protects against the risk of downturns,” he said. “If that were to occur it would be disastrous to every Canadian, to every community and to businesses across Canada,” he said.
Under the guidelines implemented by the Office of the Superintendent of Financial Institutions, home buyers must qualify for a mortgage at 2 per cent higher than the rate being offered by a regulated lender, including Canada’s big banks, or 2 percentage points above the Bank of Canada five-year rate.
In its last budget, the Liberal government also raised the amount that first-time home buyers can borrow from their Registered Retirement Savings Plans to $35,000 from $25,000.
A $100 million Shared Equity Mortgage Provider fund will also encourage the affordable ownership by non-profit developers such as Toronto’s Options for Homes, Vaughan said.
“You can cluster this mortgage support in that sector and therefore purpose build low-income affordable housing programs like the one we see at Lawrence and Bathurst that created 600 homes that were all in the $275,000 to $325,000 (price range) for families,” he said.