MP wants to improve Home Buyers’ Plan

Winnipeg MP (NDP) Pat Martin was pleased this week to hear his private members bill, introduced on April 2, gained momentum as a result of backbench Tory MP Rick Dykstra’s support. 

The Tory MP’s backing made the House of Commons Finance Committee commence a study to look into whether production of the penny should be discontinued. While not the most serious item on the Finance Committee’s agenda, it should carry some weight as there are 20-billion pennies now in circulation.

Another private members bill scheduled to come forward in April is before the Finance Committee. The bill was introduced by MP John Cummins, another Tory backbencher. It is a dollars-and-cents issue with significant spin-offs for the Canadian economy. 

Since the Home Buyers’ Plan was begun in 1992, the economic impact of this program is close to $20 billion. The Canadian Real Estate Association (CREA) was instrumental in developing and successfully introducing the plan.  

Without a doubt, this program has been a resounding success as it has enabled more than 1.8-million plan users to borrow $18.6 billion from their RRSPs to buy a home. It allows individuals to borrow up to $20,000 from their RRSP ($40,000 per couple) towards the purchase of a first home. 

But the limit has not changed since 1992, yet the market  has. The average MLS® home price between 1992 and 2006 went up 85 per cent, and the Consumer Price Index rose 27 per cent over the same period. If adjusted to reflect inflation, the maximum individual RRSP withdrawal should have increased to $25,980.

Tory MP John Cummins is calling on the government in his private members bill to raise the borrowing limits under the current Home Buyers’ Plan. 

Cummins is aware of CREA’s long-standing call to adjust the limit to be more in keeping with home price and inflation increases.

The news release from MP John Cummins on March 3:

First-time home buyers’ plan 

to be improved

OTTAWA—Bill C-520, a Bill to increase from $20,000 to $25,000 the amount of money first-time home buyers can borrow from their RRSPs without tax penalties was introduced in the House of Commons by John Cummins, MP, (Delta-Richmond East).

The Home Buyers’ Plan currently allows individuals to borrow up to $20,000 from their RRSP to purchase their first home. Home prices are substantially higher today than when the $20,000 limit was put in place in 1992. This will be the first adjustment to the loan limit since the Home Buyers’ Plan was established.

The increase in the loan limit to $25,000 will help first-time home buyers in every region of the country and will allow couples to withdraw up to $50,000. The increase will allow new home owners to maximize their down payment.

A qualifying home under the Home Buyers’ Plan can be purchased for the RRSP holder or for a related disabled person. A person is considered a new home buyer if they have not owned their own home in the past five years. A disabled person or someone related to a disabled person can participate in the Home Buyers’ Plan without complying with the five-year rule if they are purchasing a home that is more accessible or better suited to their needs.

The borrower has up to 15 years to repay their RRSP starting in the second year after the year of withdrawal.

The increase in the loan limit under the first-time Home Buyers’ Plan coupled with the new Tax-Free Savings Accounts give Canadians an increased opportunity to buy their first home. Money can be withdrawn tax-free from the new Tax-Free Savings Accounts and, unlike the money withdrawn from an RRSP under the Home Buyers’ Plan, need not be repaid.

British Columbia members of the Conservative Caucus have long supported an increase in the Home Buyers’ Plan.

CREA is doing its part to get behind this MP’s private members bill coming forward next week. It drafted a letter that is going out to all MPs across the country from local or provincial real estate associations. Lorne Weiss, chair of the Manitoba Real Estate Association’s political action committee and chair of CREA’s federal affairs committee, has signed letters to all Manitoba MPs including Martin.

A few quick highlights of this letter are as follows:

It indicates CREA’s long-standing support to increase the Home Buyers’ Plan limit has received strong support from members of all federal parties. 

This plan is the only national program for homeownership that encourages savings and down payments. This is noteworthy in light of some of the newer mortgage products that support higher indebtedness through extended amortizations and interest-only mortgages.  

While the new Tax-Free Savings Accounts, introduced in this year’s federal budget, may be helpful in saving to buy a home in the future, they are intended to build up equity over time and their utility is modest at best.

Homeownership is the cornerstone of retirement for the majority of Canadians. It makes good sense to allow Canadians to save for a home and save for retirement at the same time. Because of the repayment feature, the Home Buyers’ Plan does not divert funds from the goal of retirement security. The integrity of the RRSP plan remains protected.

The Home Buyers’ Plan has proven itself over 15 years and does not cost the public treasury. It supports worthwhile social and economic purposes in homeownership.

In conclusion, besides helping close to 1.8-million Canadians in buying their first home and creating close to $20 billions in economic spin-offs, this program encourages Canadians to start retirement savings earlier, since owning a principal residence represents the foundation of an overall financial and retirement plan.

Statistics show Home Buyers’ Plan users are repaying their loans back. Repayments as a percentage of withdrawals was 59.9 per cent in 2006.  

And finally, it is important to stress that in requesting the limit be increased to $25,000 per individual, it does not mean the default position for someone considering using the plan should go the highest maximum amount. It just enables Canadians who want to put more down payment on higher priced homes to have more ability to do so through this vehicle.