More than 500,000 people signed up for the First-Home Savings Account in its first year, but a personal finance expert believes a bigger awareness strategy can lead to even more people benefitting from the program.
The First Home Savings Account (FHSA), which launched on April 1, 2023, allows those who have not owned a home in the previous four calendar years to save for a down payment.
The account allows maximum contributions of $8,000 annually, up to $40,000. Contributions are tax deductible like a Registered Retirement Savings Plan (RRSP) and interest accrued is tax-exempt, similar to a Tax-Free Savings Account (TFSA).
Cindy Marques, certified financial planner and director at Open Access Ltd., said the program’s first year has been largely a success and clients have been pleased with the accounts.
“I personally think it’s a great way to encourage Canadians to save for a home, while giving us better tax incentives to do so,” she told BNNBloomberg.ca in a recent phone interview last week.
“I know the down payment goes beyond $40,000 in today’s market, but it’s something and at least it’s higher than the home buyer’s plan amount.”
Finance Minister Chrystia Freeland announced back in January that more than 500,000 Canadians opened a FHSA in the program’s first nine months.
“That is more than half a million Canadians who are one step closer to getting those first keys of their own,” Freeland told reporters on Jan. 11. “Half a million Canadians who are taking concrete, practical steps every day in their lives to achieve the dream of owning their first home.”
Uptake could improve
Despite the strong uptake, Marques suggests even more people might open an account if they understood its benefits and who qualifies.
“I am very acutely aware of how there is perhaps a lack of literacy in general about many of these accounts,” she said.
“I’m not surprised that many people are aware of this acronym but don’t quite know how it works, whether they’re eligible and what the draw is towards in any way.”
Specifically, she mentions the term “first home” as a roadblock to many Canadians who’ve previously owned a home and assume they no longer qualify.
In reality, the accounts are available to anyone who hasn’t owned a home in the previous four calendar years.
“You can be a homeowner today and then in four year’s time satisfy the criteria of first-time home buyer, because you sell your house and you simply don’t own one and your common-law partner doesn’t own one,” she said. “Now you’re considered a first-time home buyer again.”
Banking response
Questrade, the only financial institution to begin offering FHSAs to customers on April 1 last year, saw “unprecedented demand” for the product.
Rob Galaski, chief journey officer at Questrade, said the amount of people to open an account with them is in the “tens of thousands.”
“You’re very clearly seeing consistent demand amongst young Canadians to explore how they can use this product to drive home ownership,” he told BNNBloomberg.ca in a recent phone interview.
Galaski said customers contributed an average of $5,300 within 90 days of opening an account, which suggests a pent-up demand for the product.
“I think for the people who understood it and the value of it, I think there was pent-up demand and you see that in the statistics,” he said.
Additionally, Questrade is still seeing internet traffic to its learning resources, which Galaski said implies Canadians are eager to learn about the FHSA.
“We’re seeing an absolute flurry of people driving to our online educational resources, trying to understand the account as well,” he said.
“This product is so valuable for the average Canadian who’s trying to own a home that we owe them the education to understand how it works for them.”
Still, Galaski believes it’s too early to qualify the accounts as a success.
“Collectively, it’s probably a little premature to call it a resounding success because the full effects haven’t been seen quite yet, but it’s pretty clear at this point that the account has set the groundwork for … a pretty promising road ahead,” he said.
As of November, all major Canadian banks offer the First Home Savings Account.
The National Bank of Canada and Royal Bank of Canada, the first two major banks to offer the accounts, each said clients have had a positive experience.
“Last summer, we described the early uptake of RBC FHSAs as phenomenal and that uptake continues through to today,” a spokesperson for RBC wrote in a statement.
“Offering FHSAs through our two online investing businesses … has really resonated with Canadians who want to save and invest for their first home. This is especially true among Canadians aged 25 to 34.”
Tweaks could help even more
Marques said the FHSA could be improved even more if it didn’t cap the rollover of unused portions of their annual maximums into the next year.
For example, right now Canadians can only contribute $8,000 annually and any unused contribution room rolls over into the next year, up to another $8,000.
Marques would like to see the rollover amount unlimited, as long as it amounts to $8,000 per year the account is active.
“If you constantly are not maxing out, you could eventually lose that altogether,” she said.
“You only have 15 years upon opening and each year you’re going get your $8,000 of room, but it is a shame. There’s periods where your cash flow might be interrupted, say you started a family or something, whatever reason that you can’t keep maxing out year after year, but you might have enough money to do so in a future year.”
The post FHSA’s first year successful, but more awareness needed: experts appeared first on Bloomberg.
