Demystifying Canada’s First-Time Home Buyer Incentive

As Canadian real estate prices continue to climb and interest rates remain at their highest levels in more than two decades, it seems the down payment required to buy a house gets dragged along for the ride, skyrocketing to heights that are difficult or impossible to save. This is a huge challenge for first-time homebuyers who want to have their own little place to call “home.” They cut back and save, only to come to the other end and find that prices have increased yet again, and their dream is just out of reach.

If a high down payment was standing between you and your first home, the First-Time Homebuyers Incentive was a tool to provide the boost you need to get into the real estate market. The First Time Home Buyer Incentive (FTHBI) was a shared-equity mortgage aimed at middle-class first-time home buyers, designed to lower their monthly mortgage payments without increasing the amount they need to save for a down payment.

Here, you’ll find everything you need to know about what Canada’s First Time Home Buyer Incentive was all about before being discontinued in early 2024.

Canada’s First–Time Home Buyer Incentive

• How did the First Time Home Buyer Incentive work
• Why was the First Time Home Buyer Incentive important for Canadians?
• What did you need to consider before getting the First Time Home Buyer Incentive?
• Could you have qualified for the First Time Home Buyer Incentive?
• Did the First Time Home Buyer Incentive really help?

How Did the First Time Home Buyer Incentive Work?

The First-Time Homebuyers Incentive was a program administered by the Government of Canada that helped first-time homebuyers secure their down payment and gave them more equity at the outset of their mortgage.

For buyers who qualified, the government put up five per cent of the price of a resale home or either five or 10 per cent of the price of a newly constructed home. The incentive was a second mortgage on the title of the property, but no regular principal payments were required. The loan was interest-free, and it could be repaid at any time without incurring penalties.

Why Was It Important for Canadians?

Even before the pandemic, housing affordability had started becoming a common issue throughout the Canadian real estate market. This was part of the reason why Ottawa launched the First Time Home Buyer Incentive program. In recent years, various studies have revealed that Canadians continue to struggle with housing affordability. The incentive took effect in September 2019, with $1.25 billion in funding earmarked for the program over the next three years.

Years after its launch, there was still plenty of confusion across the country. Was it a loan? Was there any interest involved? Did you have to make regular payments? Did the government institute a dollar amount to be repaid?

What Did You Need to Consider Before Applying for the First–Time Home Buyer Incentive?

The FTHBI was a loan based on the fair market value of the property.

The loan had to be repaid within 25 years of the date borrowed or when the home was sold, whichever came first.

While the loan was interest-free, it was a “shared equity mortgage,” which means the government shared in any gains on the property value.

Alternatively, if your property value took a hit, your repayment amount to the government would be less than the amount borrowed.

For example, let’s say you took the five-per-cent incentive on a home priced at $200,000 (wishful thinking!), which would be $10,000. If you sold your home for $300,000 or its value increased to $300,000 at the 25-year mark, you would have to repay five per cent of the current value, or $15,000. On the flip side, if the home’s value decreased to $100,000, you’d only have to repay $5,000.

Once you have been pre-approved for a mortgage, found the home you are looking for, and determined that you were eligible to apply for the First-Time Home Buyer Incentive, then the next step was filling out the application forms and submit them to your lender, who would have submitted the application for you. This was required to be done before you closed on the house.

Could I Have Qualified for the First-Time Home Buyer Incentive?

• The FTHBI was aimed at helping middle-class home buyers who needed a boost. Thus, in order to qualify:
• The borrower must have been a first-time homebuyer
• The borrower must have had a household income of less than $120,000
• The mortgage was capped at four times the maximum household income of $120,000, or $480,000. This meant that the average price of a home would be $500,000 to $600,000, depending on the down payment.

New Qualification Rules Took Effect in Canada’s Priciest Cities

A couple of years into the federal housing program, new FTHBI eligibility criteria were announced for those buying a home in Canada’s priciest markets of Toronto, Vancouver, and Victoria. In these cities, in order to qualify, the first-time homebuyer:

• Should have had a maximum household income of $150,000 (increased from $120,000)
• Could borrow up to 4.5 times their household income (increased from 4 times)

This would increase their buying power to roughly $722,000, up from $505,000. The firmer rules still applied to all other regions in Canada.

If you were still determining whether your home fell in the Toronto, Vancouver, or Victoria metropolitan areas, you could have checked a Statistical Area Map online to double-check. Confirmation of the location of the property would have come from the Program Administrator.

Would the First-Time Home Buyer Incentive Really Have Helped??

Critics had questioned the value of the FTHBI, arguing that it would do little to help homebuyers in Canada’s priciest housing markets – those people who needed the incentive the most. The first iteration of the incentive was initially capped at $480,000. According to the data, this was what home prices were roughly in these major urban centres in 2022:

Toronto: $1.005 million

Vancouver: $1.17 million

Victoria: $889,000

Furthermore, the media had reported that only one-third of applicants for the incentive were from Canada’s largest cities, and homebuyers did not seem too keen on the idea of the government having a stake in their homes.

RE/MAX’s 2022 Housing Affordability Report revealed that homebuyers were employing some creative measures to assist with their purchase, including co-ownership, multiple families residing in a traditional single-family home, and financial assistance from parents.

In the end, it came down to personal preference. The First Time Home Buyers Incentive provided a way out for people who were really struggling with securing their first home, but some people may not have liked the idea of having to owe money to the government. Because of its lack of popularity and confusion, Ottawa discontinued the program, but this does not mean that prospective homebuyers do not have similar options to choose from in this market.

Home Ownership Program Assistance

Across the country, there are many variations of the federal homeownership assistance program. The Ontario real estate industry, for example, has plenty of municipalities that offer something similar to the FTHBI.

In the Kingston housing market, the municipality government offers first-time homebuyer households or renters down payment assistance equal to ten per cent of the purchase price (maximum $40,000).

In the communities of Haldimand and Norfolk, officials provide residents with the Homeownership Program that extends down payment help for first-time homeowners who come from low- to moderate-income households.

In the Collingwood real estate sector, the town provides first-time homebuyers with a down payment assistance program. This initiative features an interest-free loan of up to five per cent of the purchase price (maximum $400,000).

Other provinces also have comparable aid packages. Manitoba has the Rural Homeownership Program, while Prince Edward Island gives eligible buyers an interest-free loan of five per cent of the purchase price. British Columbia designed a first-time homebuyers program called the BC Home Owner Mortgage and Equity Partnership Program, which offers eligible first-time homebuyers repayable down payment assistance loans of up to five per cent of the purchase price.

Alberta has several homeownership incentive programs. At the provincial level, there is the First Place Home Ownership Program that transforms surplus school sites into townhomes and then sells these units to first-time buyers at market prices. At the local level, there is the Attainable Homes Calgary (AHC) initiative that approves loans to help first-time buyers fund five per cent of their down payments.

Housing Affordability Help?

Industry experts contend that the best way to restore housing affordability is to employ various policies to bolster supply, such as easing zoning restrictions at the municipal level or expanding the nation’s labour pool in the construction sector.

“Addressing Canada’s housing needs will largely rest on the ability to significantly expand the stock of housing. Multi-pronged actions will be required to address capacity issues and build homes Canadians can afford,” said Robert Hogue, the assistant chief economist at RBC, in a report.

Still, it will take time to address shortages and reclaim affordability. As a result, households need the assistance for today rather than tomorrow. Ultimately, there are plenty of avenues to explore to get the financial help you need to achieve the homeownership dream. While the FTHBI is gone at the federal level, you will see that there are still many similar programs at the provincial or municipal level. Are they enough? It all depends on your market, but something is better than nothing!