The Home Buyers’ Plan was made available in 1992 in order to make home ownership more affordable for Canadians. As part of the Home Buyers’ Plan, home buyers are able to borrow from their RRSPs and use that money for a down payment toward a home purchase. In the 14 years since it was established, nearly 2 million Canadians have taken advantage of the plan. So when the Liberal government promised to expand the plan when on the campaign trail, they had the ears of prospective home buyers across the country.
Since the election, however, mum’s been the word.
The Liberals’ pledge was part of a larger plan to commit $20 billion over 10 years for social infrastructure spending, which included plans such as tax breaks for developers and landlords to address housing affordability in Canada.
Prime Minister Trudeau’s Liberal Party said Canadians would be offered new ways to tap into their RRSPs to finance the purchase of a home under certain circumstances: “We will modernize the existing Home Buyers’ Plan to allow Canadians impacted by sudden and significant life changes to buy a house without tax penalty. This will ease the burden on Canadians facing job relocation, the death of a spouse, marital breakdown, or a decision to accommodate an elderly family member.” Under the current rules, only first-time home buyers are eligible to withdraw up to $25,000 in a calendar year from your RRSPs in order to buy or build a qualifying home for yourself or for a related person with a disability. If two people are buying a home together, then each person would be able to withdraw up to $25,000 each from their respective RRSPs. Repayment begins the second year after withdrawing the funds, and buyers have up to 15 years to repay the amount in total. Of course, the earlier that the funds are repaid, the faster one’s retirement funds get back on track.
Experts say that the silence on the Home Buyers’ Plan expansion isn’t a surprise, given two large factors. One is the fear that Canadians don’t have enough money for retirement – The Broadbent Institute released a report earlier this year concluding that among all Canadians ages 55 to 64 without pensions, half have only enough savings to last for one year. The other factor is the debate surrounding the housing markets in Toronto and Vancouver and finding a way to temper those two areas without upsetting the balance that exists in the rest of the country. The government already tightened mortgage lending requirements in February, requiring larger down payments for homes above $500,000, and are contemplating other options.
"My first reaction was that that was fantastic news," mortgage broker Darick Battaglia told CBC news, although he also admitted that “It's probably not a good idea to add more fuel to that fire.”
Low mortgage interest rates
have been a big factor in the number of people wanting to get into the housing market, and that coupled with low housing supply in the two major Canadian real estate markets have caused prices to continue rising, making single family homes unaffordable relative to incomes. Thanks to the recent Brexit vote in the UK and current inflation below the 2% target, there doesn’t appear to be any change to current mortgage rates.
There’s also the argument that by expanding the Home Buyers’ Program and allowing more people to get into the housing market, it will do nothing to help with the “demand” part of the problem in Toronto and Vancouver, and provide further fuel to the fire. Household debt is also close to record highs, with two thirds of credit outstanding to households for residential mortgages
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