This article was submitted by Jake Abramowicz, a mortgage agent with Premiere Mortgage Centre.
As someone who has helped literally thousands of first-time buyers get into the housing market, I can tell you one thing: If you kill their chances, you kill this market. It's that simple. First-time buyers represent somewhere between 40-50% of market activity in Canada, whether it is pre-construction or resale purchases. Without these buyers, our market would literally crawl to a standstill if not fall on its face. What should the government do to help? Here are some wild ideas that I know many will greatly disagree with, but ones that I think should happen to help this market of buyers.
First, what is a "first-time buyer". Let's agree we will use the CRA definition: someone who has not owned a property in the last 4 years "plus a day". That means if the last house you sold was in 2016, and today is 2021, you're four-years-plus-a-day away from having owned, therefore you're a first-time buyer.
Now that we got that out of the way, let me tell you some things I would do (in no particular order), to help this market.
I would allow first-time buyers to receive a 30-year amortization on their first term
House prices are going up much faster than incomes. What's the one way of helping people manage their first-purchase? Easy. Help their cash-flow situation. Most first-time buyers are young, starting families, and growing in their careers and earning years. Extending amortization by 5 years can lower the payment by about $275 on a $500K mortgage, per month. Not earth-shattering, but certainly not peanuts either.
I would provide TRUE incentive for first-time buyers
This would include a complete 100% rebate of the land transfer tax if the buyer stays in the property for over 5 years. I know that Land Transfer Tax initiatives are municipal, but perhaps some kind of tax credit could be applied on a Federal level? Right now there are no true real incentives in for first-time buyers (and oftentimes they are quite surprised to hear that).
I would absolutely change the stress-test
I would alter the stress test for first-time buyers, slightly. I would modify it to Contract Plus 2% NOT Contract Plus 2% Or 4.79% Whichever Is Higher. What's the difference? Rates today have settled in the 1.99 range. Right now, someone has to prove they can afford mortgage payments at 4.79%. That's a 2.79% spread versus if they were allowed to qualify at contract PLUS 2%. The result? Someone who makes $100K and has 5% down can qualify for 4.75x income today. If we changed it to PLUS 2%, and rates were 1.99, this buyer could qualify for 5.3x income. A pretty big difference in some cities.
Allow more usage of the RRSP and extend repayment to 20 years
Right now we allow only $35,000 of the RRSP to go towards a down payment. Why not make this higher to, say, $50,000, and extend the repayment to 20 years? I have seen many RRSP accounts that have done very well and the buyers can't access them without paying hefty penalties.
READ: Aggregate Price of a Home in Canada Expected to Break $800K This Year
A lot of people will say this is NOT what is going to help our housing market be more affordable, and we should be making it much harder to buy into. I can't say I agree simple because housing has been one of the most sound and stable investments, even during a pandemic, and we should encourage people to get into the property market. The property market has had everything but the kitchen sink thrown at it -- and still it has not slowed down. Why not help first-time buyers for once, who want to get in on the action, with some incentives like the ones above?
I did want to say that the initial roll-out of the FTHBI has been a total disaster with only a reported 4% of the allotted budget being spent on helping buyers. Rumours of it increasing to $722,000 are quite helpful, but have to wait and see what exactly the Federal Government will announce in its budget release today.
