First-time homebuyer program beneficial outside GTA: Samaroo
By Rob Lamberti, AdvocateDaily.com Contributor
The federal government’s new homebuyers program could help many get that elusive dream home, but it’s not expected to have much of an effect on those living in high-priced urban centres like Toronto and Vancouver, says Toronto real estate lawyer Sarita Samaroo.
The $1.25 billion program launches in September and allows a first-time buyer an incentive that is payment and interest-free for a period of time, says Samaroo, principal of SST Law Professional Corporation.
Samaroo tells AdvocateDaily.com that homebuyers can still borrow using their RSP allowance to purchase a home.
“I see the new incentive as a benefit, but it will be short-lived,” she says. “You have to apply for it now. It starts Sept. 2, and if you’re approved, the purchase has to close on or after Nov. 1, 2019.”
The average price of a home in Toronto rose in June year-over-year by 5 per cent to $882,900, according to the Toronto Real Estate Board MLS Home Price Index. The average price of a home in the Greater Toronto Area (GTA) for June was just under $800,000, a 3.62 per cent increase since last June.
Samaroo says eligible borrowers are limited to a maximum income of $120,000 a year. They must also have a minimum down payment for an insured mortgage with Canada Mortgage and Housing Corporation. The mortgage can’t exceed four times the total qualifying income, according to the CMHC website.
“I get the sense that this may not be as applicable to clients to purchasing in certain areas of Ontario because the prices are typically at minimum $500,000 plus, but I think this is a valuable resource to have in Canada to break into the market,” she says.
The objective of the program for those who qualify is to reduce the monthly mortgage payment without increasing the down payment, explains Samaroo.
The amount offered would be five per cent of a resale home, and up to 10 per cent of a new build, she says. Payments can be made any time, but aren’t required for 25 years or until the house is sold.
The repayment amount is based on the sale price or value of the home, and it could rise or fall, depending on the market. For example, with a $200,000 house where a new buyer received a five per cent incentive, or $10,000, the amount repayable would be $15,000 if its value increases to $300,000.
The opposite would apply if the value of the home drops. The government and the homeowners would both lose money.
“If there is an opportunity outside of the Greater Toronto Area, and there are properties listed at, possibly $200,000, in and around that price range, then it’s helpful to have that five per cent or 10 per cent incentive,” Samaroo says.
“Essentially, the incentive works like a second mortgage, and it allows first-time homebuyers some additional money for closing costs,” she says.
Those costs could include home inspection fees, a deposit when making an offer on a home, a land survey, a land transfer tax, various insurance policies on the mortgage, title and home, sales tax on new homes, and lawyer fees. Of course, moving fees need to be paid, she says.
“I think this is a great incentive overall. I think it’s fair that the government gets an equity gain,” Samaroo says.
She says it will be interesting to see if the incentive leads to increased sales.
“I think it will increase activity in the market,” Samaroo says. “But what if there is a loss or a downturn?
“The likelihood of a loss isn’t very high, but if there is, then what?” she wonders. “Is the aim for the government to make some money or is it strictly to stimulate the economy?”
Samaroo says she doesn’t believe Ottawa’s objective is to make money with the incentive.
“Generally speaking with these programs, the benefit is that a buyer doesn’t have to borrow to pay for closing costs, and then be disqualified for the mortgage.”
She expects the incentive will have a greater impact on smaller communities where housing costs are lower.
“I think it’s beneficial, and it’ll be interesting to see how the program will affect the market in Canada, and whether it can continue as an incentive the government can provide,” Samaroo says. “If it’s successful, it should be encouraged in the future.”