The B.C. government is offering to help first-time homebuyers cover the cost of a mortgage down payment with an interest-free loan.
The B.C. Home Owner Mortgage and Equity Partnership program will provide a maximum of $37,500 — or up to five per cent of the purchase price — with a 25-year loan that is interest-free and payment-free for the first five years.
"I think most people who have bought their first home can look back and remember how hard it was to make that down payment," said Premier Christy Clark. "We must make sure it is easier for first-time home buyers to find their way into a really tough housing market right here."
"Our B.C. government wants to be your partner, if you want to buy your first home."
NDP says debt risk is too high
The intention of the program is to assist people who can afford the mortgage payments on a new home but are challenged to make the down payment.
The province will start accepting applications for the program on Jan. 16, 2017.
Homebuyers will pay no monthly interest or principal payments over the first five years as long as the home remains their principal residence.
After the first five years, homebuyers begin making monthly payments at current interest rates.
B.C. NDP housing critic David Eby expressed concern about young people taking on debt with the future interest rates unknown.
"The risk of attacking this problem by encouraging people to take on more debt instead of providing more affordable housing is that people will be at increased risk of default if interest rates go up," said Eby.
Eby said the province should not have sold off land parcels in Vancouver, including the Jericho Lands, and instead should have built affordable housing on that land.
The provincial government said the program will allow homeowners to save during the first five years of the mortgage and have the option of paying off the entire loan at that point.
Homebuyers can repay the loan over the remaining 20 years, but may make extra payments or repay it in full at any time without penalty.
Economist concerned prices will go up
The maximum purchase price of a home that qualifies for the loan is $750,000.
There are substantial eligibility requirements. Applicants must be permanent Canadian residents for the past five years and B.C. residents for the past year.
The income or combined income of applicants must be $150,000 or less. Homebuyers need to be pre-qualified for a high-ratio insured mortgage and can buy anywhere in B.C.
UBC Sauder School of Business economist Tom Davidoff called the program "terrible policy." He said there is too much demand chasing too little supply, and that providing more financial flexibility to people will keep both demand and prices high.
"People are going to bid exactly what they are willing to pay. Now you tell them you are going to give them more money … and it encourages them to bid more for the property," said Davidoff. "So to the extent you have multiple first-time home buyers bidding on the property, all this does is hand money to the property owner."
The province provided an example of a home purchase price of $475,000. The minimum down payment required for an insured first mortgage is $23,750. The new buyer would be able to receive up to an $11,875 interest-free loan for five years under the new program.
The loan support will run for three years and the province estimates about 42,000 new homebuyers will take advantage of the program.
Housing minister dismisses concerns
In an interview with On The Coast host Stephen Quinn, B.C. Minister of Housing Rich Coleman says he doesn't often agree with Davidoff, and on this point, he's "completely wrong."
He says Davidoff and others are focusing too much on the Lower Mainland market. In places like Penticton, Clinton or Prince George, it will help the market and buyers, Coleman said.
"You have to understand the total market, not just micro pieces," he said. "I have two children who both started out with condos and now own single-family homes a decade or so later. They have to start somewhere.
"This is an opportunity to have people start somewhere and it also frees up other pieces of the market at the same time."
Coleman says applicant screening will prevent people from taking on too much debt from these loans.
"They have to be able to afford the mortgage. … We're helping with the down payment."