Vancouver Goes For Housing Bubble #2: Will Fund Home Down Payments With Interest-Free Loans
Having allowed Chinese money launderers to create a massive bubble out of the Vancouver housing market for the past several years despite loud warnings from numerous sources (this site included) until its inevitable crackdown this summer, when it imposed a tax on offshore purchases, popping the ultra high end housing bubble and sending Chinese buyers south of the border to Seattle (although after a sharp drop may be staging a quick rebound as the latest chart from the MLS shows)…
… British Columbia is now focusing on the low end of homebuyers, where the British Columbia government is repeating all the worst mistakes of the first bubble, and has offered to “help” first-time homebuyers to 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 5% of the purchase price, with a 25-year loan that is interest-free and payment-free for the first five years. In other words, homebuyers will soon be able to once again buy homes with no money down, leading to a repeat bubble, only this time on the lower end of the price range..
“The dream of home ownership must remain in the grasp of the middle class here in British Columbia,” said Premier Christy Clark cited by CBC.
While the stated intention of the program is noble, to assist people who can afford the mortgage payments on a new home but are challenged to make the down payment, based on historical precedent, with no “skin in the game”, buyers will now scramble to bid up everything that is available for sale, sending the green (and red) lines in the chart above soaring.
The province will start accepting applications for the program on Jan. 16, 2017.
Furthermore, 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. Homebuyers will repay the loan over the remaining 20 years, but may make extra payments or repay it in full at any time without penalty.
Making sure that Chinese oligarchs do not take advantage of Canadian generosity, the program is capped with a maximum purchase price of a home that qualifies for the loan is $750,000.
That said, 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 needs to be pre-qualified for a high-ratio insured mortgage and can buy anywhere in B.C.
The loan support will run for three years and the province estimates about 42,000 new homebuyers will take advantage of the program.
There is even a pretty infographic for those who like these things explained with the help of cartoons.