On Dec 15, 2016 the BC Government announced that it is launching a ‘Homeowner Mortgage and Equity Partnership Program’ to assist first time home buyers who are residents of BC (And either citizens or permanent residents of Canada for at least five years).
What we know…
The program provides an interest free and payment free (for the first five years) loan that must be paid back over a 25 year period.
It matches dollar for dollar the savings of the homebuyer to a maximum of either 5% of the property value, or $37,500.00 and applies only to properties priced at $750,000.00 or below.
The loan will be secured by a second mortgage.
The loan is only available to first time buyers.
The loan is only available for an owner occupied property.
Applications cannot be made until Jan 16, 2017
Loans will only be advanced between Feb 15, 2017 and March 31, 2020
Household income must be below $150,000.00 per year.
The payment per $10,000.00 borrowed will be around $50.00 per month. About $5.00 more than simply borrowing it from the bank.
The Mortgage Insurance (CMHC) premium will be ~$250.00 higher per $100,000 borrowed.
It can be paid out penalty free at any time.
Impact on the Spring Market?
On Oct 3, the Federal Government cut back the purchasing power of this group of buyers by 20%. As a result the 2017 Spring market is already going to be severely limited as people experience the frustration of the new rules being applied to them and try to shop with 20% less mortgage money available to them. New rules which many applaud when enacted, right up until they make their own mortgage application and realize just how restrictive things now are.
Or worse, for the folk that realise their kids may never be able to move out now.
And so to the rescue, sort of, we have this new BC program which increases a (first time) homebuyers purchasing power by 5%, or does it?
Not if we have to debt service a phantom payment for the loan, which we almost certainly will have to do.
Best case, buyers remain at a 15% net disadvantage, more likely they are stuck with the 20% handicap going into 2017.
Imagine having 20% sawed off the handle of your stick, racquet, clubs, bars, ski poles, before the big event. Now you have the idea.
All the rants about how this will push prices higher are rants of the under-informed.
Rants that overlook that while one hand giveth between 0% & 5%, the other hand taketh 20%.
But wait, there’s more…
Once again this policy was built in the vacuum of Government offices with zero industry consultation. And so there are many unanswered questions, questions that policy makers would have made a point of getting answers to had their been broader industry consultation.
What we do not know…
Will all three mortgage insurers (CMHC, Genworth, CG) approve of this program?
Will any lenders approve of this program? (most are still having their legal departments review the policy, and no decisions have been announced)
Where does the BC Gov’t stand on the homebuyers 2.5%-5% down payment money having been gifted as opposed to saved?
How will this be verified?
Perhaps most importantly of all, will lenders make changes to their own policies? As most lenders currently will not allow borrowed down payment money to be used at all.
Further all lenders have language in their contracts prohibiting the registration of second mortgages without consent. Will they consent to this programs requirements?
Despite zero payments and zero interest over the first five years will lenders still require a phantom payment to be input? If yes – then any purchasing power advantage is eliminated.
Does the higher interest expense on the loan combined with the higher CMHC premium cost allow this to make any sense to take advantage of at all?
At least the BC Government is injecting some of the massive windfalls generated by both the Property Transfer Tax and Foreign Buyers Tax back into the hands of the ‘less fortunate’. It is hard to fault them for the effort. Mind you some will find fault, but fail to offer actual workable (both logistically and politically) alternatives.
Economists are pulling no punches:
“If we are serious about helping home buyers, we should take steps to allow a vast increase in housing supply in the Lower Mainland.” – Andrey Pavlov
While I certainly agree with the last statement, after all it is economics 101 that greater supply lowers prices, what would you think about these next few headlines if you saw them, and what do you think the media would write about such actions?
BC Government overrules municipalities on development and implements an expedited reduced cost land development program for residential housing priced below $750,000.00
BC Government removes thousands of acres from the ALR (Agricultural Land Reserve) freeing it for residential development
BC Government approves clearing of greenbelt behind your home for row housing
None of these would get any party re-elected as they would be political nightmares. The first implies the government is in the pockets of the developers, bad optics for any government. The next is an attack on ‘farmers’ and a ‘way of life’, and the last hits home the hardest – we all (mostly) want more housing to be built to ease prices, so long as the new housing is not on our block. We don’t want new neighbours with their traffic, their noise, their kids running around playing Pokemon Go, their blocking our sun, views, driveways, etc.
So give the government a break on this one. It is costing you nothing, in fact even if the entire plan blew up, $700,000,000 is a fraction of the billions that will flow in from the other real estate transaction taxes. And ultimately it will not blow up, for two reasons.
#1. CDN’s do not miss mortgage payments. We just don’t.
#2. There is no bubble, and there is no massive influx of supply on the horizon – but demand is just getting started.