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CMHC to share in home price gains and losses in its new shared-equity mortgage plan

June 20, 2019 | Posted by: Aaron Baxandall

For a five per cent loan, homeowners would repay five per cent of the value of the home, not the amount of the original loan  Nicholas Sokic  Financial Post  June 17, 2019

The Canada Mortgage and Housing Corporation will share in the gains and losses in home price value as part of its new shared-equity mortgage program for first-time homebuyers.

The outline of program was first announced as part of the federal government's budget in March, but specifics were scant until Monday, when the CMHC announced additional details, including a launch date of Sept. 2.

Under the terms of the plan, the government will advance an interest-free loan of up to five per cent on an existing home and up to 10 per cent for a new home, in exchange for an equivalent equity stake in the property.

Buyers must repay the loan after 25 years or if the house is sold. The program does not allow for partial payments over time.

The government will share in the gain or loss on the home price, meaning that for a five per cent loan, the homeowner would have to repay five per cent of the value of the home at the time of repayment, not the amount of the original loan. An independent appraisal would establish the amount of any repayment.

The program, which will cost $1.25 billion over three years, does come with its share of stipulations. Buyers must have a household income under $120,000. Further, the amount of the insured mortgage and the CMHC incentive would be capped at $480,000. This means that, in the case of a 15 per cent down payment, the most expensive home one could purchase under this program would be valued at $565,000.

Rob McLister, the founder of rate comparison site, thinks the program will provide little reprieve for first-time buyers in Canada's most expensive markets like Vancouver and Toronto. The latter's average home price as of May 2019 was $838,540, according to the Toronto Real Estate Board.

'I just don't see anyone needing this thing and I think few are going to want it,' McLister said. 'Essentially it's for people who already qualify anyway and have lower than average debt ratios for a first- time buyer. Based on all the calculations I've done I can't find a case where someone would qualify for a bigger mortgage under the first-time buyers versus just getting a regular CMHC five per cent down insured mortgage.'

You got the government sharing a chunk of your home appreciation and it's a well-documented fact over history that home values rise faster than the rate of inflation.

The program will take applications on a first-come, first-serve basis.

CMHC stated that they went by the Canadian Revenue Agency's definition of a first-time buyer to avoid confusion in the market. This is 'anyone who has not lived in a home owned by oneself or one's spouse or common-law partner in the year of acquisition, or in any of the four preceding years.'

McLister referred to B.C.'s failed $700 million first-time homebuyer loan program as a potential harbinger. It was launched by the provincial Liberal government in 2017 and only attracted 3,000 applicants, a far cry from the predicted 42,000. It was then dismantled by the NDP in March 2018.

He thinks the federal program could suffer a similar fate.

'It's a program they admit was not intended to get a lot of people into the housing market; its more something that makes it look like the government is helping. You got the government sharing a chunk of your home appreciation and it's a well-documented fact over history that home values rise faster than the rate of inflation,' said McLister. 'How many people would want to give up a piece of that pie to the federal government? Yes, you're going to save a bit of interest on that second mortgage but the numbers just don't make sense mathematically.'

On July 31, CMHC's website will be revamped with new information about the program, as well as calculation tools so that potential buyers can determine if it's right for them.

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