Affordability and Debt Reduction

Increase the First-Time Home Buyers’ Tax Credit

Providing financial support to help Canadians fulfill their homeownership dream at a time when house prices are at a record high across the country is critical. The First-Time Home Buyers’ Tax Credit (HBTC) is a non-refundable tax credit available to Canadians purchasing their first home. It was originally designed to compensate for some of the costs associated with the purchase of a home. However, since the program was introduced in 2009, closing costs have continued to rise, yet there have been no changes to the HBTC. Closing costs can range from 1.5% and 4% of the home purchase.

CREA recommends the $750 non-refundable tax credit be replaced with a $2,500 non-refundable tax credit per qualifying home for first-time home buyers to better align with current closing costs.

CREA also suggests the Canada Revenue Agency (CRA) expand the definition of first-time home buyer to help more Canadians. Currently, it is defined as someone who “did not live in another home owned by them or their spouse or common-law partner in the year of acquisition or in any of the four preceding years.” In the United States the definition of a first-time home buyer includes:

  • A single parent who has only owned a home with a former spouse while married; and
  • A displaced homemaker who has only owned with a spouse.

CREA proposes that the definition of a first-time home buyer be expanded to include the above circumstances.

Reintroduce the 30-Year Amortization

While recent changes to mortgage rules were made to reduce risk and limit debt-to-income ratios, more can be done to help first-time home buyers under the age of 40 enter the housing market. Data from Equifax shows young Canadians represent the lowest risk in terms of mortgage arrears. Further data shows younger first-time home buyers at the beginning of their careers have incomes that rise sharply from their mid-20s through their late-30s. Their Gross Debt Service Ratio drops as their income grows, placing these potential home buyers in the best position to take on long-term financial obligations and manage them effectively.

CREA believes the government should reintroduce the 30-year amortization for insured mortgages to assist these young first-time home buyers. Extending the length of a mortgage improves affordability by reducing the size of monthly payments. For example, a $472,000 home with a 10% down payment and a 5-year fixed rate mortgage at 3.74% would have monthly payments of $2,242 on a 25-year amortization. The same mortgage with a 30-year amortization would have monthly payments of $2,019–a difference of $223.

This change would allow greater flexibility in mortgage choice and lower payments, providing first-time buyers more opportunity for saving, spending or investing. It would also increase the purchasing power of first-time home buyers by approximately 20% and allow an additional 15,000 to 20,000 potential home buyers to enter the market.1

[1] Professionnels hypothécaires Canada. Advice to Policymakers on How to Improve Housing Affordability for Canadians. Février 2019