Incentives for Home Buying: What First-Time Homebuyers Need to Know

In the real estate market, interest rates are foundational to home-buying decisions. High interest rates, in particular, can profoundly impact first-time homebuyers. While these elevated rates often pose challenges, they also present unique opportunities, especially when paired with the various incentives available to help first-time buyers. Let's explore the good and the bad of high interest rates, as well as the financial programs designed to assist first-time buyers in entering the real estate market.

The Challenges of High Rates for First-Time Buyers

Increased Borrowing Costs

One of the most direct impacts of high interest rates is the increased cost of borrowing. When interest rates rise, the cost of a mortgage increases, leading to higher monthly payments. The increased cost of ownership can push the dream of home ownership further out of reach for many, particularly in high-cost areas like Vancouver or Toronto, where the average home prices are already substantial. 

Stricter Lending Criteria

During periods of high interest rates, lenders may become more cautious and tighten their lending criteria. Lenders might approve smaller loan amounts, limiting the purchasing power of first-time buyers. This, paired with price stickiness—where sellers are unwilling to lower their prices despite reduced demand—can lead to stagnation in the market, making it difficult for first-time buyers to find suitable properties.

Reduced Competition

Higher interest rates typically reduce the number of active buyers, decreasing competition for available homes. This reduced competition means buyers can take their time to make informed decisions without the pressure of immediate action.

Grants & Incentives for First-Time Homebuyers

To help mitigate some of these challenges, various financial incentives are available to first-time homebuyers. These programs can provide much-needed support and make entering the real estate market more feasible.

The Tax-Free First Home Savings Account (FHSA)

An FHSA account is designed to help first-time buyers save money for purchasing their first home. The annual contribution room for this account is $8,000, and any contributions you make are tax-deductible, allowing you to reduce your taxable income by the amount you contribute. Additionally, the savings you invest in this account grow tax-free, and withdrawals for purchasing a house (up to a maximum of $40,000) are tax-free as well.

The Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) is a government program that allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to buy or build a home. You can withdraw up to $60,000 ($120,000 as a couple) without immediate tax consequences. The withdrawn funds must be repaid into your RRSP over 15 years, starting after the second year the withdrawal has been made. If you do not repay the required amount within a given year, it will be considered taxable income.

Province-Specific Incentives

In many provinces and territories, incentives exist to help first-time homebuyers save for a downpayment and other ownership costs. Here are some of the incentives available:

British Columbia: First-Time Homebuyers' Program

Yukon: Homeowners Grant

Northwest Territories: Home Purchase Program

Saskatchewan: First-Time Homebuyers Tax Credit

Ontario: Land Transfer Tax Refunds

Quebec: Home Buyers' Tax Credit

New Brunswick: Home Ownership Program

Nova Scotia: First-Time Homebuyers' Rebate Program

Prince Edward Island: Real Property Transfer Tax First-Time Homebuyers Exemption

Takeaways

First-time buyers should carefully evaluate their financial situation, explore creative solutions, and seek professional advice to make informed decisions in a high-interest-rate environment. Speaking with a knowledgeable REALTOR® can help first-time buyers identify the best opportunities and navigate the home-buying process. 

Interested in connecting with a Sutton agent who will help you plan for your first home purchase? Get connected here.

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Sources

The Canadian Press. (2024, July 11). Interest rate cut fails to spark home-buying spike: report. Surrey Now-Leader. Retrieved July 22, 2024, from https://www.surreynowleader.com/news/interest-rate-cut-fails-to-spark-home-buying-spike-report-7436793

Depner, W. (2024, June 5). B.C. housing starts, sales should increase after interest rate cut: experts. Quesnel Cariboo Oberver. https://www.quesnelobserver.com/news/bc-housing-starts-sales-should-increase-after-interest-rate-cut-experts-7372046?utm_source=surrey%20now-leader&utm_campaign=surrey%20now-leader%3A%20outbound&utm_medium=referral

Hanrahan, L. (2023, March 9). Sold in Three Days For $300K Over Asking? It's Happening Again. Toronto Storeys. Retrieved August 26, 2024, from https://storeys.com/sold-over-asking-gta-real-estate-market/

National Bank. (2024, March 21). Grants and incentives for first-time home buyers. National Bank. Retrieved July 31, 2024, from https://www.nbc.ca/personal/advice/home/grants-incentives-purchasing-new-home.html

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