The 2019 Federal Budget Really Missed The Mark!

Wow! I had time blocked the Liberal Budget Announcement with anticipation of hearing some great news…boy was I disappointed. I was hoping to hear about tax cuts on both the personal and business side to help make Canada competitive yet again…nothing. I was hoping to hear that relief was on the way for those looking to get into the housing market without any strings attached. Not going to lie, I was left a little disappointed.

Anyway, I’m not here to ramble and my opinion really doesn’t matter because you want the facts. You want the numbers. I get it.

I am only going to discuss the announcement as it relates to the housing sector and there are only two:

  1. Increase to the First-Time Home Buyer RRSP redemption limit
  2. CMHC’s ‘Shared Equity Mortgage’

Before I begin I would like to disclose that for those who don’t know, I am a Mortgage Broker and have been for 16 years. If you feel there is a bias here, you are likely right. I am pro consumer! My fiduciary duty is to the consumer! I am their advocate first and foremost…not the bank’s and certainly not Government’s. As a result, if you are looking for a more balanced approach, you may wish to stop reading at this point and walk away. This is in no way a political rant, simply me providing information based both on facts as well as 16 years experience.

With that out of the way, let’s not waste anymore time.

First order of business, the increase to the First-Time Home Buyer RRSP Redemption limit. The Liberals have proposed an increase from $25,000 to $35,000. We’ll take it! Any increase is great news. In my experience, this will have a limited impact as most First-Time Home Buyers are not sitting on a pile of disposable income that they could 1) stock away into an RRSP knowing they can’t access it in an emergency and 2) borrow against in the future to purchase their new home and afford both the payments that come along with home ownership as well as the annual obligation of now having to pay back the RRSP at a rate of 1/15th every year. For example… borrowing $35,000 from the RRSP would leave the home buyer having to pay $195 monthly or $2333.33 annually back into their RRSP on top of any obligations that may already exist.

Again, I like it, but the impact is limited.

Next up, CMHC’s ‘Shared Equity Mortgage’. What a bad idea for all concerned, the home owner, CMHC and the tax payer.

Let me take you back a couple of years before we get into the numbers. When all these mortgage policy changes were introduced, both CMHC and the Finance Department were citing that it was necessary to peel back the risk to protect the tax payer by limiting tax payer exposure. Remember hearing about that?

Now they want CMHC to loan qualified first time home buyers, those whose household income does not exceed $120,000, 5% at a 3.1% mortgage insurance premium (90% loan to value) for a re-sale home or 10% at a 2.8% mortgage insurance premium for new home builds. This effectively increases tax payer exposure and goes against everything Evan Siddall (CMHC) and Bill Morneau (Department of Finance) have preached over the past 3 years. I won’t even get into the Government rhetoric about household indebtedness and how both Siddall and Morneau take very seriously, only to have government add to that burden.

I’m confused about this one for many reasons…

  1. It is supposed to take affect September, yet brokers, insurers, nor any lenders have any additional details. Stay tuned…
  2. How will they track who owes what?
  3. Will they register an interest on title?
  4. Will there be an additional mortgage insurance premium for Government involvement?
  5. How is this ‘Shared Equity Mortgage’ to be paid back…upon sale? I would suspect it would even be repayable upon a refinance?
  6. What happens in the event the property value falls and any equity has been evaporated or a client ends up in financial distress and needs to sell the home? The ‘Shared Equity Mortgage’ is percentage based so would CMHC participate in the loss? My fear is that this could force a client into hanging onto the property and if they can’t, a massive CMHC judgment in the amount of the 5 or 10% would be the result.
  7. Speaking of CMHC participation…would they participate at the same percentage when the property has been sold at a higher value then the original purchase? Meaning, would CMHC want 5 or 10% of the gain as well?
  8. The Liberal Government has set aside $1.25 Billion over three years to facilitate this.

These are a few questions that I am seeking answers for. I will provide clarity as the details unfold.

Let’s get to the numbers already. Okay, I get it!

I chose to chart the numbers from two different perspectives…

  1. What do the numbers look like based on a home of $500,000, which would be the max?
  2. What do the numbers look like based on an income of $84,000 annually?

This is clearly about buying votes! There is no way the average consumer can understand this. I mean I crunched the numbers and it gave me a headache. Under the ‘Shared Equity Mortgage’ program, the MAX MORTGAGE = 4X annual income + incentive…hence my headache.

Who is going to want to be in business with the Government knowing there is no benefit to them personally?

All that said, any news is good news and our housing market can use as much publicity as possible right now. If there was ever a time where Canadians needed the advice of an independent mortgage professional, that time is now!

In other news, and I will speak to this on Monday, the lack of anything meaningful in this Federal Budget must have the Bank of Canada on edge as rate cut is very much on the table. Markets are reacting and it is not looking good for Canada, however, lower borrowing costs (interest relief) is on the way.

If you haven’t done so already, please share this. Let’s get the word out to help educate all home buyers.

As always, feedback is appreciated.