How will the federal budget affect your housing options?

Will it affect your rent 2 own possibilities?

Prior to the budget on Wednesday, the government had already announced the major housing initiatives that were contained in it.

Several specific items had been announced:

One was to allow for insured mortgage amortization periods to be extended to 30 years. Until now, insured mortgage (any mortgage with less than 20% down payment) amortization periods were limited to 25 years.

The extended term means the payment is a little lower each month and the mortgagee can therefore afford a somewhat higher valued property. By my calculations, it works out to between 10 and 15% more. So, for example, if you have a $100,000 income, you’d have qualified for a property value of about $475,000 with 10% down payment. With the change, you’d qualify for a property value of about $535,000.

But, the extension applies only to first-time homebuyers and only to new home builds. Since we can rarely consider brand new homes for rent 2 own programs, this will have extremely limited benefit for the rent-2-own model.

A similar initiative allows stress relief for current homeowners who find themselves in “at risk” situations due to changing circumstances. If they meet certain eligibility criteria (not yet defined) they will also be allowed to extend their amortization period to accommodate lower monthly payments.

Again, this will not help those considering a rent-2-own program or already in one.

Another announcement was to increase the maximum withdrawal from an RRSP used for the purchase of a new home (Home Buyers’ Plan) from $35,000 to $60,000. This plan allows for the funds to be withdrawn from an RRSP tax free when applied to the purchase or building of a home, provided it is repaid within 15 years.

Additionally, the initiative extended the grace period to start repaying those withdrawn RRSP funds from two to five years.

However, this plan normally does not work for rent-2-own agreements, so this may only help those who can buy without using the rent-2-own model. (That said, there are ways we can occasionally accommodate some RRSP funds into the R2O model.)

The budget added a few more initiatives to encourage growth in the housing stock, limited supply being the major cause of rapidly escalating house prices. Specifically, they propose to transform some surplus federal properties, such as Canada Post and National Defence lands, into housing. The goal is to add another 2 million new homes to the 1.87 million the country is already on track to build by 2031.

The plan is to lease the lands to builders who will build affordable housing on them. This may have a softening affect on house prices as the entire market adjusts to the expanded supply.

One wonders, though, about the plan to “lease” the land to builders, since mortgages are virtually impossible to obtain on leased land (and, in any case, the Buyer requires at least a 20% down payment). Won’t this doom many more consumers to remaining renters for life? And won’t it be developers, therefore, who are the biggest beneficiaries of the plan?

Unfortunately, the government did not address another of the major issues making housing unaffordable, the so-called “stress test.” It was introduced during the covid pandemic when interest rates fell to rock bottom levels. Fearing that people would find themselves in trouble when their mortgages came due and interest rates were much higher, the stress test required buyers to qualify for mortgages 2% higher than the ones they were actually getting, or 4.89%, whichever was greater. (The 4.89% was later raised to 5.25%.)

This immediately wiped out about 25% of the value of property people could afford. (For example, if someone had previously qualified for a $600,000 property, they suddenly were limited to a $450,000 property.)

One would have thought that when mortgage rates increased to those levels, the stress test would be cancelled. It has not been. Now, if you can get a mortgage for 5%, you still need to qualify for a 7% mortgage.

The budget did not provide relief on this measure which would, undoubtedly, get many more renters into home ownership.

But then, who ever thought that’s what this government’s intentions were, anyway?

At least, that’s how I see it . . .