First-time homebuyers can soon get a loan from the B.C. government to help with the down payment on a house, Premier Christy Clark announced Thursday.
But critics warn that the program will drive up prices and increase risk for young homeowners already carrying crippling debt.
The province will match the money saved by first-time buyers up to $37,500 or five per cent of purchase price.
No interest or principal payments are required in the first five years of the 25-year loans, as long as the home remains the buyer’s main residence. Purchase price must be $750,000 or less, excluding taxes and fees.
After five years, buyers will make monthly payments at prevailing interest rates. The loan will be registered as a second mortgage.
“What we know is for many first-time homebuyers, qualifying for a mortgage is hard, but getting past that down payment and scraping together the 25 grand or 50 grand that you might need to be able to get into your first home is just impossible,” Clark said.
“So we want to be there to help first-time homebuyers get over that hump. And we are going to be partners in their home.”
The province offered the example of a $475,000 home where the first-time buyer has saved $11,875 or 2.5 per cent of the selling price. In that case, the province will match the buyer’s saved amount, allowing them to make the required down payment of $23,750.
In the case of a $750,000 house where the buyer has saved seven per cent or $52,500, the province will match the buyer’s contribution up to five per cent of the price. The government’s maximum loan of $37,500 would allow the first-time buyer to put down $90,000 and reduce interest costs.
Tom Davidoff of University of B.C.’s Sauder School of Business panned the program for primarily benefiting sellers and developers. “I really don’t like it. I just think it’s lousy economics.”
He said that subsidizing buyers in markets with limited ability to increase housing supply will drive up prices. “So taking taxpayers’ money to give to people who own property — that’s a step in the wrong direction.”
B.C. NDP housing critic David Eby said the program will encourage young people to take on more debt. “This is a group that’s struggling with credit-card debt, student debt, record levels of debt that, according to the federal government, is so high it’s concerning for the federal economy.”
The province should use swaths of publicly owned land to develop co-ops and other affordable housing rather than selling the land for one-time gains, Eby said.
Bryan Yu, an economist with Central 1 Credit Union, struck a more positive note. He said helping first-time home buyers with their down payment is “critical” in higher-priced markets. “It does provide definitely a demand uplift on the townhome and condo side for areas like Victoria as well as Vancouver, and allows people who have been waiting to get into the market that ability.”
He doubted the program would increase prices significantly, because buyers still have to qualify under tighter federal rules that make it more difficult to get a mortgage. “A lot of these buyers who it’s targeted at are still constrained by other factors.”
Mike Nugent, president of the Victoria Real Estate Board, welcomed the program. “It’s certainly positive. A lot better than the federal government [saying]: ‘Let’s make borrowing and lending more restrictive.’ ”
The province is spending $703 million over three years for the B.C. Home Owner Mortgage and Equity Partnership program, and estimates it will help about 42,000 B.C. households get into the market. Clark said there is no cap. “It’s not as though once we get to 42,000, no one else will be eligible.”
The program will begin accepting applications on Jan 16.
To qualify, buyers must have:
• been pre-approved for a high-ratio insured mortgage for at least 80 per cent of the purchase price.
• been a Canadian citizen or permanent resident for at least five years.
• lived in B.C. for at least one year before applying.
• never owned interest in a residence anywhere in the world.
• combined, gross household income under $150,000.