A bombshell announcement was dropped in December when the BC government announced a plan to assist first-time homebuyers enter the housing market. Controversial BC Premier Christy Clark says the new BC Home Owner Mortgage and Equity (HOME) Partnership program will contribute to first-time homebuyers’ down payment. But will this usher in the real change that this province needs? Get the up & up about BC’s new down payment program and let me know what you think.
ONE HOME, TWO DEBTS
I have to admit that I was more than a little shocked when I first heard the news that BC was tackling the housing crisis by offering…more debt? And while I hope it brings about the type of change this province so desperately needs, I am not yet sure it’s a safe bet.
A great idea in theory, in the end the HOME program means you are responsible for TWO debts instead of one. The program will provide up to $37,500 (or up to 5% of the purchase price) with a 25-year loan, but ONLY to match the amount the first-time homebuyer has already saved towards a down payment.
With no monthly interest or principal payments (as long as the home is the buyer’s main residence) for the first 5 years, after this period homebuyers will make payments at current interest rates or repay it in full at any time without a penalty. A last stipulation is that the home cannot be sold or transferred until this debt is paid off.
After this glorious 5 year period ends, of course, the 20-year “repayment plan” will be set at the prime lending rate plus 0.5 per cent. This leaves the happy new homeowner to pay back the original mortgage as well as the down-payment loan.
In this case, 1 + 1 really does equal 2.
INDEBTED TO TAX
“All that tax [the BC government] collected, we are transferring that into this fund to support people. Part of that is the foreign buyer’s tax, part of it is the luxury tax on homes over $2 million,” Clark said. “So it just seems like the right thing to do to take that property purchase tax money and put it into first-time homebuyers’ pockets.”
But not everyone is so easily impressed.
“I hate it. To be very clear, I think it’s really bad economics,” said Tom Davidoff of the University of B.C.’s Sauder School of Business. In an article published by The Vancouver Sun, Davidoff was quoted as saying that the move could be an attempt by government to prop up a real estate market that is at risk of a sharp decline.
While praised by developers and most in the real estate industry, it seems to many that this new program is sticking its tongue out at the federal government’s recently implemented measures meant to crack down on bad mortgages.
As reported by The Sun, NDP housing critic David Eby said the province is encouraging buyers to go deeper into debt. He said it flies in the face of the Canadian Mortgage and Housing Corporation’s new stress tests, designed to gauge whether a buyer could still pay their mortgage if interest rates rose to the five-year standard rate of 4.64 per cent.
Tsur Somerville, UBC’s director of the Centre for Urban Economics, agreed.
“They’re trying to cool down the housing markets, and now you have Christy Clark trying to give people extra gas (for the fire),” Somerville said.
Even CMHC CEO Evan Siddal “appeared critical of the idea during a speech in London, U.K., last month.” Siddal remarked that “Politicians are tempted to help first-time homebuyers enter the market, but low down payments may be part of the problem adding to affordability pressures and macro-economic vulnerabilities”.
VANCOUVER IS NOT THE CENTRE OF THE UNIVERSE
I know, I know. It can come as quite a shock the first time someone tells you. But believe me; it’s true. For those who are scraping the sides of their piggy banks to afford a place in the city, it’s easy to forget that BC is an awfully big place.
According to the BC housing website the province of BC is being guided by 6 major principles in their efforts to make housing more affordable. This includes increasing the housing supply, rental supply and smart transit expansion. In fact, over the next 5 years our provincial government has promised a sum totaling roundabout $855 million. This year alone they have pledged $575 million to “support construction or renovation of 4,900 units of affordable housing throughout the province.” Which brings us to a very important point.
Yes, some of this money will go to support affordable housing in Vancouver. But when they say “throughout the province,” they actually mean: throughout the province! If you ask me, this amount might be enough to make a significant impact on the GVA; but the entire province? Let’s just say that the word ‘hopeful’ sprang to mind.
ELIGIBILITY FOR BC’S NEW DOWN PAYMENT PROGRAM
Before you set off house hunting for that great little condo in Yaletown, there are a few considerations. The BC HOME Partnership Program is not without eligibility requirements, which means it’s not for everyone.
The following is a list of criteria that was posted by the BC housing website to determine if you are eligible.
- Be a Canadian citizen or permanent resident that has resided in Canada for at least five years.
- Have lived in British Columbia for at least the full 12 months preceding your application.
- Be a first-time homebuyer who has not owned an interest in a principal residence anywhere in the world at any time and has never received a first-time homebuyers’ exemption or refund.
- The combined, gross household income of all individuals on title must not exceed $150,000.
- The home being purchased must be used as the principal residence of all individuals on title for the five years after purchasing.
- Purchase a home that is $750,000 or less.
- Be eligible for a high-ratio insured first mortgage for the home
IF YOUR POCKETS ARE STILL ON FIRE
Do not go blindly into this good night… Crunch the numbers, do the math and do not overextend yourself. There is nothing I love more than helping people reach their dreams of home ownership, but the payoff must outweigh the cost.
Applications for the BC Home Partnership open January 16, 2017. At this time there are still a lot of uncertainties about the program. We are unsure how lenders will treat the repayment of the loan, if borrowers would pay a higher insurance premium for the unconventional form of down payment and how long the process would take from application to funding.