Would many Canadians give up a slice of the potential equity on a first home purchase in return for help with the down payment?
The answer, apparently, is a resounding “no.”
First-time homebuyers in Canada have soundly rejected the federal government’s First-Time Home Buyer Incentive (FTHBI) program, announced nearly two years ago as a way to help those struggling to afford a down payment.
Figures tabled in Parliament on April 10 show that, as of January 31, 2021, only 9,108 approved applicants had received the FTHBI, which is in the form of a shared-equity mortgage.
Just $170 million has been disbursed in incentives, out of $1.25 billion the three-year program is worth.
The FTHBI began on September 1, 2019, and is run by Canada Mortgage and Housing Corporation.
Since the incentive was launched, only nine home buyers in Vancouver and 39 in Toronto have opted for the program, despite home sales and prices hitting record levels since it started.
The figures showed that homebuyers in Edmonton participated in the program more than any other city, at 1,288 successful applications, with Calgary a distant second at 636 applications.
Provincially, Quebec has seen the highest number of participants at nearly 3,800, followed by Alberta with approximately 2,800. Another 770 came from Ontario and 342 were from B.C.
The government had forecast that at least 100,000 Canadian buyers would sign on.
In all, the incentive has paid out only 14% of the funding to help first-time homebuyers.
The program involves the federal government contributing between 5% (on a resale home) and 10% (on a new home) of a first-time buyer’s down payment. In exchange, the government gets an equal stake in the home’s equity, sharing in future gains or losses in value until the loan is repaid after 25 years, or when the home is sold.
Of those participating in the program, the most common mortgage value is between $150,000 and $350,000, according to a report by iPolitics. Just four successful applications were for a mortgage valued between $450,000 and $500,000.
In May 2021, the government announced changes to the program that would allow first-time buyers in Toronto, Vancouver and Victoria—Canada’s most expensive markets—to qualify under the program for purchases up to $722,000, up from the roughly $505,000 limit in place for buyers in the rest of the country.
But the program has two major flaws, according to the mortgage brokers. First, it requires owners to share in the home’s equity. Since the average price of homes has increased 24% in the past year alone, according to the Canadian Real Estate Association, buyers would have had to share a hefty profit with the government under the FTHBI.
In Greater Vancouver, for example, the composite home price as of May 2021 had increased $165,000 from a year earlier.
Second, most first-time buyers can qualify for a larger mortgage if they don’t participate in the FTHBI.
“All eligible participants would actually be able to borrow more using a traditional 5% down insured mortgage,” Mortgage Professionals Canada president and CEO Paul Taylor told Canadian Mortgage Trends.
As a result, Taylor noted, the program doesn’t really create any new market entrants. “It provides an option for those who already qualify, in very specific parameters, to reduce their monthly payments at the tradeoff of home equity,” he said.
