BC home loan program
Are you feeling the Christmas love yet, Vancouverites? Because Santa, in the strange form of B.C. Premier Christy Clark, really wants to help you get your foot in the real estate door come 2017.
But these housing treats for all you first-time homebuyers come with some significant strings attached.
Yesterday, Premier Clark announced a new government-backed loan program which will match the down payment for first-time homebuyers in British Columbia, up to a maximum of $37,500 and no more than five percent of the home’s total value.
Let’s break that down. Say, by the grace of your saving habits but mostly your parents, you have a piggy bank worth $30,000 and you’re looking to buy a place. Thirty grand, unfortunately, goes nowhere in the Greater Vancouver area where the average price of a detached home costs $1.5 million and the average price of a 1-bedroom condo costs upwards of half a million. Under the B.C. Home Partnership program, if you’ve never purchased a home before, you will be eligible to borrow an additional $30,000 to put down for a new home.
That’s actually not bad at all. If you’re trying to break into the housing market by purchasing a 1-bedroom condo, the loan program really helps you to reach that 10 percent down payment goal, without having to take out a line of credit from a bank or a much bigger mortgage than you’d like.
But the real benefit of the program, as opposed to borrowing from a financial institution, is you will not incur any interest on that loan for the initial five years. That might not sound like the best Christmas present ever, but keep in mind that even a small interest charge (say 2 percent) of $30,000, compounded over five years can add up to a lot ($3,155 to be exact).
Other quick facts about the program: The loan only applied to homes with a total purchase price of $750,000 and under, and you need a gross household income of less than $150,000.
To qualify, you also need to be deemed a “stress-tested” buyer by the big banks — that is, the big banks need to find you reliable enough to pay back at least 80 percent of the home’s purchase price over the next 25 years.
“I firmly believe that the dream of home ownership must remain within reach of the middle class in British Columbia,” Clark said at a press conference for the launch of the program, Thursday.
We wholeheartedly agree, Premier Clark. But the sad fact is that despite various government tools to calm the housing market specifically in Toronto and Vancouver, home ownership in these two cities still remain out of reach for far too many.
There are various factors for this — limited land supply in both Toronto and Vancouver, a rush of foreign money looking for a safe haven, and extremely low interest rates which makes for cheap mortgages. The problem is, we’ve known all that for ages, but it was only this summer, starting with B.C.’s tax on foreign buyers, that federal and provincial governments really started to crack the whip on the housing sector — one that has been in bubble territory for quite some time now.
Too little, too late, some real estate bears say.
But the elephant in the room has been addressed. It’s going to take quite a while before houses become somewhat affordable, and in the meantime, this loan program, which will last three years, will surely lend a helping hand to young people and new immigrants — two key demographic groups that have been priced out of the housing market.
Vanmala Subramaniam is VICE Canada’s Money & Economics Editor. Follow her on Twitter.