With the recent release of the 2019 federal budget, many Canadian’s were surprised to find out that the liberal government is making it easier for homeowners to purchase their first home. They are doing this by increasing the amount that buyers can borrow from their retirement savings to put towards their down payment – should they qualify.
Assisting people who want to enter the housing market has been something that the Liberal government has been struggling with since taking office in 2015. With a federal election looming this fall, it was now or never for the liberal government to make a change. After all, the continuously increasing real estate prices around the country – especially in its major cities has made the dream of owning your own home just that, an up until now unattainable dream for many Canadians.
The Housing Crisis
Currently, there are an estimated 1.6 million Canadian households who are living in places that either do not suit their needs or are too expensive. Because of the demographics that primarily fall into this category, this new rule only applies to households with an income of $120,000 or less – a wide spectrum when you consider that Statistics Canada calculated that the average household income is $50,000.
Those who qualify will see the benefit pick up part of the costs of their mortgages as a way to reduce their monthly payments. This amount will be determined by the household income, as well as different aspects of the property being purchased. For example, is this a new home, or one that is already existing?
A New Borrowing Limit
According to the newly announced budget, the maximum amount that a first-time homebuyer can withdraw from an RRSP is $35,000 – a $10,000 increase from where it previously stood. Another major change is that while borrowing against your RRSP has traditionally been solely for first time home buyers, those dealing with the end of a common-law relationship or marriage are now eligible.
Aimed at assisting Canadian’s “that face legitimate challenges entering housing markets”, this measure is expected to cost roughly $1.25 billion over the next three years. Essentially, after qualifying for a mortgage, an additional $100 million would flow through the Canada Mortgage and Housing Corporation to help organizations that have an already established history of providing “shared equity mortgages”.
Recouping the Costs
While the budget does state that the government would then recoup these costs once the house is sold, it does not go on to explain what would happen if the property in question is sold at a loss.
Additional Program Details
- This program is part of a larger goal of solving the housing crisis. Other ways that this issue is being addressed is through improved data collection, a $300 million contest to encourage cities to become innovative in how they expand their housing stock and establishing an expert panel on housing affordability and supply.
- The new measures are set to increase the annual number of new homebuyers across the country, from 100,000 to 140,000. This would be accomplished by lowering monthly payments without creating higher household debt.
- The program is not designed to have an impact on the pricing of the overall market. It is, however, going to leave first-time homeowners and others who qualify better off, creating a more optimistic outlook on the national housing market.
- There are hopes that this program will increase the housing supply.
- The budget also includes an additional $10 billion more for a program to fund the development of new rental units. This will hopefully create 14,000 units over a decade.