VICTORIA — The B.C. government will loan first-time homebuyers some of the cash they need to afford their down payment, Premier Christy Clark announced Thursday.
The program will provide a government-backed loan of up to $37,500, or five per cent, of the purchase price of a home for qualified buyers, starting Jan. 16.
The goal is to match part of a person’s down payment to help them afford to buy their first home, as long as they already qualify for a mortgage under federal rules and the home is worth less than $750,000.
“What we know is for many first-time home buyers qualifying for a mortgage is hard, but getting past that down payment and scraping together the $25,000 or $50,000 you might need to be able to get into your first home is just impossible,” said Clark.
“So we want to be there to help first-time home buyers get over that hump.”
Clark said the move is a way for government to “be a partner in your home” and move renters into home ownership where possible.
The 25-year loan is interest-free for the first five years, and does not require the homeowner to even pay down the principal during those first five years, as long as they keep the home as their principal residence. It will be recorded as a second mortgage on the title of the property.
After the first five years, the province expects monthly payments at the current interest rate, with the loan repaid over the remaining 20 years. Extra payments or full repayment at any time will be allowed, according to the government.
The new down-payment program will cost government an estimated $703 million over three years, and is expected to help 42,000 people, according to government figures.
To be eligible, a homeowner must:
• Have saved a down payment amount at least equal to the loan amount for which they are applying from government.
• Have been a Canadian citizen or permanent resident for at least five years.
• Have lived in B.C. for at least one year prior to the sale.
• Be a first-time buyer who has not owned an interest in any residential property anywhere in the world at any time.
• The home must have a purchase price of less than $750,000.
• The buyer must already be able to qualify for an insured high-ratio first mortgage for at least 80 per cent of the purchase price.
• The combined gross household income of all people on title must not be more than $150,000.
Provincial officials provided a few examples Thursday of how the program would work.
On a home worth $600,000, federal mortgage rules dictate a person must have a down payment of at least $35,000. If the person has saved only $30,000, the government would provide a matching $30,000 loan, giving the buyer $60,000 for the down payment.
On a home worth $750,000 (the program maximum), the minimum down payment would be $50,000. If a person had saved a $52,500 down payment, government would provide five per cent of the $750,000, adding $37,500 to the down payment and allowing the buyer to pay almost $90,000 as the down payment. That could save $5,200 on interest payments on the mortgage over five years, say government officials.
Applications for the program will start on Jan. 16, 2017, for purchases that close on or after Feb. 15, 2017. The province said it will be a three-year program.
Government officials told media Thursday they hoped the program would have a very small default rate on the loans, because the owners would be meeting federal mortgage rules and qualifications under federal stress tests.
The premier said she was not concerned the program would raise housing prices.
“Our analysis tells us that it won’t because everybody who is going to be eligible for this program will have to have been accepted for a mortgage already,” said Clark.
Reaction to the new loan program was mixed.
It was largely praised by developers, builders, mortgage brokers and the real estate industry.
“The fact is it does help first time home buyers and relieves the pressure on the bank of mom and dad,” said Neil Moody, CEO of the Canadian Home Builders Association of BC.
“It keeps the housing continuum moving along. We need these first time homebuyers. Anything that can be done to help them get into the market at that stage is a positive thing.”
Moody said he’d also like to see government raise the threshold on which first-time buyers avoid the property transfer tax on homes from the current $475,000 level.
Dominion Lending Centres also praised the program as a “bold an innovative step to help potential new buyers to meet the greatest hurdle of first-time homeownership – the down payment.”
Others slammed the program for adding to people’s debt.
“I hate it, to be very clear, I think it’s really bad economics,” said Tom Davidoff, of the University of B.C.’s school of business.
“Big picture, it’s a step in the wrong direction. We have too much demand chasing too little supply.”
Davidoff said it will drive up prices by giving buyers more money to bid on properties, and any benefit will be eaten up by developers and realtors.
“A lot of the benefit to this is a taxpayer-funded gift to the real estate developers and people selling their homes,” he said.
Government should instead be increasing supply, said Davidoff.
There is some obvious benefit to some first-time buyers in helping them afford a down payment, he said. But Davidoff said he also viewed the move as an attempt by government to prop up a real estate market that was at risk of a sharp decline in 2017.
“I think part of this was the Liberals wanting go get to a goldilocks point with the market,” he said. “They didn’t want the nutso boom. And they didn’t want to pull the 15 per cent (foreign) buyer tax, because that’d be bad optics. There was some chance of a hard landing by the real estate market, and I think that puts this off.”
NDP critic David Eby said all the province has done is encourage buyers to stack up more debt. He said the province should be using land it already owns to build affordable housing and increase supply.
Eby also pointed out that B.C.’s attempt to make it easier to enter the market flies in the face of the federal government’s tightened rules for mortgages that were designed to reduce the risk of defaulting on payments if interest rates rise.
“The federal government is trying to rein this in with changes they’ve made, and the B.C. government is saying borrow more money, instead of providing more housing that’s actually affordable, that people can afford to pay and maintain the debt on even if interest rates go up,” he said. “It’s a huge risk to take.”
The changes for first-time homebuyers are the latest in a series of housing reforms by the Clark government.
The province introduced a 15-per-cent tax on foreign buyers in August, which data suggests has sharply curtailed foreign purchases in the Metro Vancouver real estate market. The tax has done little to lower the price of most detached homes, but the real estate industry expects prices to drop next year.
The government had also offered tax breaks to first-time homebuyers in its February budget. The budget reforms included removing the property transfer tax on newly built homes worth up to $750,000 (a tax savings of up to $13,000), while increasing the property transfer tax to three per cent from two per cent on homes sold for more than $2 million. At that time, the province chose not to change the $475,000 threshold on used homes that allowed first-time homebuyers to also avoid the property transfer tax. Vancouver Sun
