On Dec 15, 2016 the BC Government announced the launch of their ‘Homeowner Mortgage and Equity Partnership Program’ to assist first time home buyers who are residents of BC (as well as either citizens or permanent residents of Canada for at least five years).While many are heralding this as a good news story, others suggest it a bad news story. The common theme on both sides is that thus far all the information around how this program will be applied by lenders is not in. And the information we do have suggests this is more of a neutral news story at least when it comes to purchasing power.
What many are unaware of, other than perhaps your Mortgage Broker, is that (some) lenders already offer down payment loan programs. These programs, called ‘flex-down’, are already approved by the mortgage insurance companies (Canada Guaranty, CMHC, & Genworth). And so for Canadian residents outside of BC hoping that such a program might be offered in their own provinces or territories the good news is that something quite similar already exists.
What the BC government is aiming for is a reduced cost version of the current flex down program, creating more of a hybrid product. Exactly how lenders embrace the BC government proposal remains to be seen at the time of this writing. Please contact me directly for further updates as this story develops.
What We Currently Know
Such programs are well intentioned, designed to help prospective homebuyers enter the market just a little bit earlier. And home ownership has proven a good thing not only for the economy but moreover for the social fabric of communities as well.
However the BC Gov’t program offers no ‘new’ money to homebuyers.
The additional 5% (maximum) financing being offered is not a cash gift, it is a loan (a second mortgage).
Purchasing Power (unchanged)
Any way it is sliced the borrower is operating within the same ‘maximum mortgage’ limit.
Option 1 - Borrow $1.00 from the mortgage lender
Option 2 – Borrow 0.95 cents from the mortgage lender and 0.05 cents from the BC Gov’t
Buyers are limited under federal lending guidelines to the same maximum total debt ($1.00 in the above example) as they were prior to this program.The BC Program replaces (it does not supplement) a portion of the debt side of the equation. It gives an applicant a different debt structure, not more debt, nor does it give buyers more cash in hand or equity in the property.
This is a loan – due and payable over 25yrs
Neither flex down mortgages, nor the BC program, gives buyers any greater purchasing power than they had previous to Dec 14th, 2016.
It is also worth noting that there are significant qualification hurdles to clear for such an approval. Standards of qualification that were set higher in October of 2016 by the Federal government still must be met. Those changes reduced the purchasing power of this same group (sub 20% down buyers) as the BC program aims to assist. However the fact remains that the 20% reduction in purchasing power implemented by the Federal Government on this group of buyers remains in effect, the BC program does not offset those changes.
If nothing else, the announcement had a positive impact on the somewhat battered B.C. Real Estate buyers psyche, because it feels like a good news story. And certainly it has generated conversations between clients, Brokers, and Realtors. Communication is always a good thing. If you have any questions about your own down payment options, I’m here to help!