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The details of the Canadian plan are not yet known. The government has entrusted the Canada Mortgage and Housing Corporation (CMHC), which will partner with homebuyers for the mortgages, to release the terms and conditions later.

While CMHC is busy delineating the contours of the FTHBI, we will take this opportunity to offer a perspective on SEMs.

In a typical SEM, a lender takes an equity stake in the property being purchased. Whereas the ownership remains with the buyer, shared equity implies that the lender will claim a part of capital gains or bear losses. Consider the following example.

A first-time home buyer is interested in purchasing a newly constructed house for $400,000. The buyer comes up with a five per cent ($20,000) down payment for a CMHC insured mortgage. CMHC will provide up to 10 per cent of the purchase price as an SEM ($40,000).

SEM effectively reduces the mortgaged amount from $380,000 to $340,000, which the government believes results in a $228 reduction in monthly mortgage payments.

For many struggling households, $228 in monthly savings will be helpful. Also, the reduced loan amount will help partially address the raised bar for mortgage qualification resulting from the stress test, which requires the borrowers to qualify at a rate 200 basis points higher than the contracted rate.

Photo by Sean Kilpatrick/The Canadian Press files

The budget also suggests the government understands that buyers are only part of the equation when it comes to tight housing markets. The questions of supply is also paramount: a budget backgrounder rightly recognized that the “most effective way to address affordability in the long run” is to “increase the supply.”