Housing Measures: 2019 Federal Budget

Yesterday’s budget announcement included two key components aimed directly at helping first time buyers get into the real estate market: an increase in the withdrawal limit under the RSP Homebuyers Plan to $35,000 per eligible person (up from the previous limit of $25,000), and an equity participation plan from CMHC to allow a defined group of buyers to enter the market with a slightly smaller mortgage.

Both of these items provide some measurable benefit. As always, there is a lot of discussion around whether these moves are good, bad, or somewhere in the middle. Rather than get into a discussion about whether this will make you more likely to vote Liberal in the next election, let’s look at who will be helped and what the impact will be.

RSP Homebuyers Plan increase. This is quite frankly a complete no-brainer for the government as it will cost them nothing and arguably could actually increase their revenue stream. You can now withdraw up to $35,000 from your RSP provided you qualify as a first time buyer and you buy a qualifying property (call our office for the specifics of these guidelines). This will give you the potential for a $20,000 increase in your down payment for a two person household. All else being equal, using the same income, you can now buy a home for $20,000 more than previously. While you do have to repay this money over a 15 year period, you do not have to “qualify” for the repayment amount in your debt servicing ratios. If you miss any of the repayments annually, that portion becomes taxable income (as previously mentioned—this is how it can increase the government’s revenue stream).

This is a nice enhancement and will help some people a little bit. Of course, if you have just entered the workforce and haven’t made any significant investments into an RSP, it probably means very little.

Equity Participation Program. This program provides an interest-free loan to first time buyers who meet certain criteria. The loan is paid back at the time the property is sold—details are still pretty thin, but it would appear that there is no interest charged and the amount paid back is the same as the amount originally borrowed (other existing programs are structured so that the repayment amount includes a portion of the increase in value of the property). Basic guidelines are that you must be a first time buyer, your combined family income cannot exceed $120,000 annually, and the total of the mortgage and equity loan cannot exceed 4 times your annual income. On resale properties the participation loan is 5% of the purchase price, and on new construction, it is 10%. The theory here is that new construction stimulates the economy more than resale and therefore the government has more to gain by encouraging people to buy new construction.

This basically means that the top purchase price with this program is about $500,000; it is really much more helpful for buyers outside of the GTA in lower priced communities. While there are some buying opportunities in the GTA for less than $500,000, they are certainly not the norm.

In basic numbers, if you bought a property for $500,000, the income required to qualify with the existing 5% down payment program would be about $105,000. If we use the new equity participation loan, the income requirement drops to about $100,000. You still need to have your own down payment, so it will not help those people who haven’t been able to save enough and don’t have family help.

It appears that this will make the carrying cost of a home a little more affordable, which is fantastic. In all likelihood, it will not bring a significant number of people into the market who could not previously qualify.

Bottom line here is that if you meet the criteria, absolutely take advantage of these two programs. We can help determine if and how these programs apply to your specific circumstances.