Vancouver’s homebuyer loan program: a help or hindrance?
From January 16th, 2017 British Columbia (and notably the City of Vancouver) will start offering dollar-matching loans to first-time Canadian homebuyers. By applying for the BC HOME Partnership, qualified homebuyers can receive loans up to a maximum of 5% of their home’s purchase price.
Vancouver’s current conundrum
In a down payment study conducted by Generation Squeeze, the average 25-34 year old Vancouverite needs to save money for about 23 years to make a 20% deposit towards a home. There’s no remarkable solace in providing a 5% bump to a down payment when the average Vancouver home price in 2016 peaked at $812,653.
Negatives of the program
The most straightforward downside to the HOME Partnership program is not that recipients get a loan(rather than a grant). The downsides lie in finer details of the eligibility requirements.
HOME Partnership loans are financed through a 25-year term, stay interest-free and require no payments for the first five years.
However, there’s a catch: the loan is registered on your property title as a second mortgage. (Yes, you’ve read that correctly: a second mortgage)
Applicants also have to ensure that:
- The home they wish to purchase is worth $750,000 or less
- Be eligible for a high-ratio insured first mortgage(or a mortgage backed by CMHC premiums)
- The gross annual income of all people listed on the property title can’t be over $150,000
- The home is their primary residence at the time of purchase and for 5 years afterwards
These requirements will shut out British Columbians who earn over $150,000 yet can’t cobble together a 20% down payment. Additionally, most homes in the Greater Vancouver Area exceed the maximum funded amount of $750,000.
Abiding by the “$750k or Less” rule would force new buyers who have started or want to start families to limit their sights on condos. Those who are fine with buying under that threshold will just have more incentive to plug more money into housing offers.
The worst part of this scheme might be that banks won’t consider any contributions made on HOME’s behalf as equity towards home values. This is because HOME Partnership financing counts as a loan even though it’s provided provincially.
Why would the BC government think it’s wise to saddle the province’s most vulnerable and new buyers with more indebtedness?
What if homebuyers want to refinance property purchased while holding the HOME Partnership loan in the future?
How does this program possibly tackle housing supply if it encourages further debt?
These are all questions that the BC government hasn’t yet addressed and likely won’t.
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