How P.E.I.'s newly announced rent-to-own home program will work

The P.E.I. government has announced details of a new program that it hopes will make it easier for Islanders to purchase their own homes.

The rent-to-own program was first announced in the provincial budget in May. The total value of the program for this year is $17.5 million, including $1 million from the housing department budget and rest from the finance department. 

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According to a news release Thursday, Finance P.E.I. will purchase eligible homes for Islanders and rent them back. 

"A tight housing market and increases in construction cost have made housing prices out of reach for many Islanders," Housing Minister Rob Lantz said in the release.

The program is being touted as a way for Islanders to buy a first home even if they are having trouble saving for a down payment or can't get a pre-approved mortgage.

To be eligible, a household with one earner must have an annual income of less than $65,000, or less than $100,000 if more than one person is employed. They must also be able to meet monthly payments equivalent to the five per cent  interest on a five-year mortgage amortized over 25 years. 

Finance P.E.I. will spend up to $350,000 on each home, excluding taxes and legal fees. The current benchmark price for a single-storey detached house on P.E.I. is $362,900.

Provincial officials said a survey of available properties on the Island Thursday morning came up with 263 homes, including everything from detached houses to condominiums, that would qualify for the program.

A sample case

Finance P.E.I. provided an example of how the deal might work for someone looking to purchase a home for $280,000.

To start, Finance P.E.I. would buy the home, covering not only the purchase price but also closing costs. Rent for the property would come to $1,635.85. That would remain unchanged over the period of a five-year agreement.

That rent is calculated as the equivalent of a regular five-year mortgage at five per cent interest, with an amortization of 25 years.

As with a regular mortgage, the renter would be paying off the interest as well as the principal cost. At the end of five years, the renter would have the option of purchasing the home with just $248,000 remaining on the principal.

In addition, the province will refund 40 per cent of the interest costs the renter paid — in this case $26,494.26 — as a contribution to the down payment on the home.

P.E.I.'s housing situation has been described as being in crisis since 2019, following rapid population growth that started in 2016.

Since that time, P.E.I.'s construction industry has struggled to build enough apartments and houses to accommodate the number of new people arriving in the province, both internationally and from other provinces.