The First-Time Home Buyers Incentive will make monthly payments more affordable for new homeowners, but it will also have an impact on the Toronto Real Estate market. The shared equity mortgage with the Government of Canada’s CMHC means that homeowners will be able to access 5% of the purchase price for an existing home or 10% of the purchase price for a new home that can be used to greatly reduce the monthly payments. It’s an interest-free investment with the only caveat being that when you sell the home (or reach the 25-year mark) you need to pay back either the 5% or 10% of the value of the home. The plan will help first-time home buyers enter the market sooner, but what will the impact be on the Toronto real estate market? Find out here.
Many potential first-time homebuyers, especially millennials, have been pushed out of the housing market. They may have enough saved up for a down payment, but they don’t have the income needed to afford the monthly mortgage payments and expenses in Toronto. The First-Time Home Buyers Incentive aims to reduce monthly mortgage payments without increasing the down payment requirement. With the new plan, buyers will be better able to purchase a home while keeping more of their hard-earned money in the bank to cover their other expenses like utility bills, childcare, and their other debt load.
To give you an idea of how much home buyers can save per month, let’s use an example of a couple buying a $400,000 newly built home. By using the First-Time Home Buyer Incentive program, they would be required to pay the $20,000 down payment and they would in return receive $40,000 from CMHC – 10% of the purchase price. This would drop the monthly mortgage payments by approximately $200 a month. With savings like this, more sidelined millennials will be able to afford a home along with their expenses and debt load. The result: increased demand for affordable housing in an already hot market.
To meet these needs, the construction industry is going to need to step up. More affordable homes in the GTA will be required to meet the needs of new middle-income buyers entering the market. If the First-Time Home Buyers plan takes off, there should be an expected boost in land development and construction throughout the GTA.
The new plan will also encourage growth in secondary markets outside of the city core. More affordable suburbs like Whitby, Scarborough, Markham, and Vaughan should expect growth but so should other markets in Peel, Halton, Hamilton, and Durham. This will encourage urban and infrastructure development in those areas, which will attract even more people and create new communities.
The First-Time Home Buyers Incentive plan is likely to attract more buyers into the Toronto market. If you’re an investor who is considering taking advantage of this influx, contact us at Medallion Capital Group. We can take you through the process from start to finish including financing, construction, and design. To learn more about our team and services, contact us today.