Can we fix affordability with more debt?

Most people agree that there’s a problem with the BC real estate market, and that problem is usually called ‘affordability’.

Affordability usually means what you’re buying is too expensive, but it can also mean that you just can’t afford the monthly payment.

Interest rates look at risk of rising, but have been at rock bottom levels for years.  That means there’s not much room to move on ‘affordability’ when it comes to interest rates.

So we’re stuck with two options: price comes down or government starts giving away money.

Important announcement” for first time home buyers from the BC government.

Daily Hive says they know what this announcement will be.

Update: They were correct, here are some details:

The B.C. Home Owner Mortgage and Equity Partnership program will provide a maximum of  $37,500 — or up to 5 per cent of the purchase price — with a 25-year loan that is interest-free and payment-free for the first five years.

“The dream of home ownership must remain in the grasp of the middle class here in British Columbia,” said Premier Christy Clark.

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.

If too much debt got us into this problem, surely it can get us out of it right?

Meanwhile the Bank of Canada is warning again about huge mortgages and growing household debt.

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Just me
Guest
Just me

This is insane. Christy knows full well that this is going to simply push prices back up.
Clearly, that is what she wants. Why not simply let prices adjust down? That would help first time buyers!

Adding fuel to the fire.

Oracle
Guest
Oracle

Puts a fire under the low end. Especially with low inventory.

This was done by the condo developers. Because they can. This happens in other parts of the world when a gov gets elected. They become dictators. That’s why politics is so important overseas.

rockerguy
Member
rockerguy

I can nearly guarantee that this interest free loan programme is being funded by revenue from the foreign home buyers’ tax. The government can borrow at close to 0%, so the cost of this programme, actuarially, is very low relative to its scale. That $37,500 lent out to first time home buyers is probably in the form of subordinated debt — i.e. a second mortgage — implying that the cost is really just the interest rate for a market-based second mortgage. So if they figure 40,000 home owners will tap this fund at, say, an average of $25,000 lent, that’s $1.0B funded at a cost of something like $60M per year. Chump change.

bullwhip29
Guest
bullwhip29

problem is that it our money, not theirs and they are essentially giving to bottom of the barrel buyers who probably shouldnt be in the market (or crooks exploiting loopholes). i can guarantee you that if the RE goes t1ts up for real, much of this debt will not be paid back and you and i will have to foot the bill. a better more equitable way to buy votes would be to simply send EVERY taxpayer a giftcard which has to be spent (not hoarded) on a more wide ranging list of local products and services within a specified time frame. i personally cant afford a ferrari and dont expect my neighbors to chip in to help me buy it

fomostyle
Guest
fomostyle

If you are first time buyer with either a) government secure job or b) wealthy parents to fall back on, this is a gift.

ostritch
Member
ostritch

Support at the bottom end. Plus moves people out of renting and potentially loosens vacancy rate. It’s what you wanted sorta.

oncebittwiceshy
Guest
oncebittwiceshy

Seriously , are you really thinking that this is going to do anything??? Those people that couldn’t scrape together a down payment, because they didn’t have the discipline or disposable income to save it, will not be able to qualify for mortgages via the new rules anyhow.

Let’s be honest. Anyone that wanted to buy over the last 10 yrs. has bought. B.C. probably has the highest debt ratio of any province and one of the highest ownership rates in Canada.

If you haven’t bought by now, you are not interested or not capable. Sometimes when you scrape the bottom of the barrel all you get is garbage.

Foo Man
Guest
Foo Man

“Seriously , are you really thinking that this is going to do anything???”

If that’s an authentic reaction to this, you should send the admin of this blog and Garth Turner a huge Xmas gift for providing a forum for such blind idiocy. You must be in charge of the 10-year popcorn preparation efforts. Ever think you just had it wrong?

bullwhip29
Guest
bullwhip29

If the interest free loan never has to be paid back, it is really a tax payer funded gift is it not?

Merry Christmas to all!

More questions…who qualifies? what types of RE can be purchased? is there a dollar limit? can anyone with a birth certificate over the legal age sign up for the free cash? who will monitor whether or not the loan is ultimately used for its intended purpose? Most importantly, where do i sign up? and what about my kids, my nieces and nephews and so forth…?

rockerguy
Member
rockerguy

It does have to be paid back, but with no principal repayment for the first five years. The actual “cost” to the government is the difference between the interest being charged to the homeowner, and the comparable rate of interest they _should_ pay on a second mortgage. Maybe 6%? 10%? It depends on the creditworthiness of the borrower, which we can assume will be set at a fairly high level so that this programme can look good without costing too much.

Based on their numbers, I estimate this programme will cost between $50M and $100M annually – way less than the money being generated by the 15% foreign buyers’ tax. Christy Clark has some fantastically smart and creative strategists. This is an ingeniously populist yet self-funding shit show.

patriotz
Member

This is the same strategy as when they increased the PTT for luxury properties and gave an exemption for first time buyers. They know it’s the FTB’s who really support the market.

ostritch
Member
ostritch

Yup. And foreign buyers, be they real or bogeymen, that cause votes to go to the NDP.

ostritch
Member
ostritch

Yup

ostritch
Member
ostritch

It has to be paid back and only 5 years later than an RRSPlown would be.

bullwhip29
Guest
bullwhip29

this has got rennie’s fingerprints all over it. would not be surprised if govt hands out more cash to developers willing to re-jig their marketing material to include an extra unit or two of lower cost (but stripped down) housing options. don’t say i didnt warn you, but entry level condos will be marketed like discount airline tickets in not too distant future

http://www.vancouverobserver.com/sites/vancouverobserver.com/files/imagecache/vo_scale_w850/images/article/body/christy_clark_and_rennie_0.jpg

ostritch
Member
ostritch

Ya. He is probably the brightest of the bunch.

bullwhip29
Guest
bullwhip29

next up…BC liberals drop a tiny hint in the next week re. raising homeowner grant threshold with formal announcement set for Jan 28/17 at aberdeen mall center stage

ostritch
Member
ostritch

They’ll probably have more candy like this all the way to Election Day.

bullwhip29
Guest
bullwhip29

max of $37500 or 5% or price

25 yr loan with NO interest, NO PAYMENTS for first 5 yrs

loan repaid over remaining TWENTY yrs at current int rates

dont need to be Cdn citizen only PR for last five yrs and BC resident for last yr to be eligible provided income of applicant(s) < $150k

fomostyle
Guest
fomostyle

In 5 years this is a shitshow.

bullwhip29
Guest
bullwhip29

when everyone has forgotten all about this in a few years the govt will change the repayment terms and conditions. or better yet maybe they’ll take a page out of the student loan forgiveness handbook?

fomostyle
Guest
fomostyle

True.

fomostyle
Guest
fomostyle

The income required of < $150k. Easily skirted. Rich parents will just "help" the kids faster now. Pays to have wealthy parents.

ostritch
Member
ostritch

Or have forged documents that say same.

Just me
Guest
Just me
(1) Open to Chinese investors if they can funnel funds from China to permanent resident in BC; (2) No mention of how they plan to recover funds if borrower decides not to pay after 5 years; is there a lien on the property? Can they attack assets of the borrowers to recover money? (3) maximum amounts seems to target condo sales in Vancouver. This is a very large transfer of money to people like Bob Rennie, and other condo marketers; (4) Prices will simply jump by the equivalent amount (say, 37k increase on a 714k apartment); People who can’t afford a down-payment, can’t afford to buy a house. This should be the guiding principle of a serious government. Christy Clark’s is not a serious government. I hate the idea that my tax dollars are going to subsidize risk taking families… Read more »
bullwhip29
Guest
bullwhip29

what is most disturbing is that so called temporary fixes like this wind up being in place permanently with tweaks and changes made over time as market conditions change. the outcome is never good when the govt meddles in ways like this…

southseacompany
Member
southseacompany

“B.C. government offers down payment loans to first-time homebuyers”, Van Sun

http://vancouversun.com/news/local-news/b-c-government-offers-down-payment-loans-to-first-time-homebuyers

“The program will provide a government-backed loan of up to $37,500, or five per cent, of the purchase price of a home for qualified buyers, starting Jan. 16.”

southseacompany
Member
southseacompany

“Vancouver home sales continue to slip following implementation of foreign buyers’ tax”, Business in Vancouver

https://www.biv.com/article/2016/12/vancouver-home-sales-continue-slip-following-imple/

“Sales of existing homes in Vancouver fell 3.4% in November and were down 37.4% year-over-year, according to data released December 15 by both the British Columbia Real Estate Association and the Canadian Real Estate Association.”

southseacompany
Member
southseacompany

“Bank of Canada warns about huge mortgages, growing housing debt”, CBC News

http://www.cbc.ca/news/business/bank-of-canada-financial-system-review-poloz-housing-1.3897875

“Nearly half of new high ratio mortgagees in Toronto owe in excess of 450% of their incomes”

Royce McCutcheon
Member
Royce McCutcheon

Huh. Each time I think decision making on this issue can’t get nuttier, something like this comes up.

I suppose the one upside of a BC Liberal re-election is that there’s a better chance they’ll wear the fallout of their boneheaded real estate policies.

fomostyle
Guest
fomostyle

It’s to capture the millennial vote. That is all.

Royce McCutcheon
Member
Royce McCutcheon

Probably. Leading edge of the Millennials are now in their mid-30s though. I’m sure some will pounce. I know others aren’t exactly itching lock their families into a scenario where they buy a tiny place or buy a place that requires massive commutes. Guess we’ll see.

fomostyle
Guest
fomostyle

I know personally 3 people already who are very excited about this. Gen X and millenials. They are only thinking of this as beneficial to them. (It’s not). Super corrupt voting tactic. Taxpayers will eat this in the end.

Royce McCutcheon
Member
Royce McCutcheon

Scary stuff. I’m staying debt-free and portable.

fomostyle
Guest
fomostyle

To buy now? I wouldn’t be able to handle the stress knowing I was buying into overheated market with 2 levels of gov changing rules monthly.

ostritch
Member
ostritch

What do they call those irritating ones with the vocal fry?

ostritch
Member
ostritch

Ya. Do they even vote? They’ll given it enough time to support the condo and townhouse market so people should understand this by May.

Boombust
Guest
Boombust

Egad. I HATE that “manner” of speaking…

bullwhip29
Guest
bullwhip29

actually many millennials want the big financial “reset” to occur so this could prove to be counter productive on the liberals part

southseacompany
Member
southseacompany

“TD Bank raised some mortgage rates—again”, MoneySense

http://www.moneysense.ca/spend/real-estate/td-bank-raises-four-year-closed-special-mortgage-rate/

“one lender announced changes to some of its mortgage rates shortly after the U.S. central bank boosted its key interest rate by a quarter point to a range of 0.5 to 0.75 per cent.”

“TD Bank raised its four-year closed special rate by 0.15 of a percentage point to 2.69 per cent and increased its five-year closed special rate by a 0.1 of a percentage point to 2.94 per cent.”

bullwhip29
Guest
bullwhip29

I buy three more…uhmm… I mean my “son” 😉 buy three, my other son buy three…

Combat roach
Guest
Combat roach

I buy one, husbah buys one?

Can a couple qualify as a first time home buyers each, and get interest free loans from gov to buy a unit each? Essentially to buy one place to live and other as an investment to rent.

Reasonfirst
Guest
Reasonfirst

I wonder how the bank will treat this in the debt-service calculations as no repayment for first five years. Pretend it’s not there until renewal?

Abdul Lahazi
Guest
Abdul Lahazi

Oh boy $37,500 of free money from the taxpayers of BC to buy property !!! How many ways will this program be abused?

Abdul Lahazi
Guest
Abdul Lahazi

This type of thing is what happens when the government tries to please everybody.

patriotz
Member

It’s only trying to please homeowners and the RE industry. I’m sure that everyone who might use this loan to buy would rather just have prices fall, which is exactly what this program is trying to prevent.

fomostyle
Guest
fomostyle

Mortgage brokers are back in biz.

fomostyle
Guest
fomostyle

Fascinating tug of war. Feds trying to slow debt down with stricter mortgage rules while Clark/Rennie trying to get debt back up!

Its_the_ALR_stupid
Guest
Its_the_ALR_stupid

If you can’t get it together to save up a 5% down payment, you should not be trusted with borrowing half a million dollars. This should be obvious to anyone with a brain.

Oracle
Guest
Oracle

Now you guys know who runs the province!!?

#Developers

With the Liquor Store, Autoplan, Taxi plate owners close behind.

patriotz
Member

“Now”? We’ve known it since 2001.

bullwhip29
Guest
bullwhip29

more like since the 70’s (if not earlier)

best place on earth
Guest
best place on earth

bears know how to whine regardless!

Royce McCutcheon
Member
Royce McCutcheon

So you think this is a sound program/good idea then? Cool.

patriotz
Member

You know, I’m sure I’ve seen something like this before. Oh yeah:

https://georgewbush-whitehouse.archives.gov/news/releases/2003/12/20031216-9.html

Combat roach
Guest
Combat roach

This new Krusty’s interest-free loan looks like “incentive” for those on the lower-end, who were actually lucky that they couldn’t qualify to become indebted slaves, to now join the crowd. Same shit as when the local drug dealer offers some “free stuff” to a local kid who just got into the puberty.

Abdul Lahazi
Guest
Abdul Lahazi

Meanwhile, back at the ranch:
Bank of Canada warns about huge mortgages, growing housing debt.
http://www.cbc.ca/news/business/bank-of-canada-financial-system-review-poloz-housing-1.3897875

Oracle
Guest
Oracle

Hearing chatter now that if prices were to drop by 10%, government would forgive the 5% loan. I’m believing this cause THEY CAN.

This may light the low end on fire. People are protected against a drop in prices.

Oracle
Guest
Oracle

If 42,000 homebuyers are approved and the countless others that don’t want housing prices to go down, then loan forgiveness WILL happen. On the backs of renters.

Oracle
Guest
Oracle

Rennie “Still don’t see riots on the street, keep em bent over”

fomostyle
Guest
fomostyle

You are right. This furthers splits renters and “owners”. And the renters will pay for this in the end.

bullwhip29
Guest
bullwhip29

true to a degree. yes, if mkt drops existing homeowners unhappy but having to pay for bailout too is a total deal breaker.

bullwhip29
Guest
bullwhip29

if govt were to put that in writing, they’d be committing political suicide as the vast majority of voters already own RE, wouldnt be eligible for the free money and would have to pick up the tab to bail out the riff raff who would likely put team krusty back in power

Oracle
Guest
Oracle

Not really. You would just have pissed off people posting anonymously on a blog.

bullwhip29
Guest
bullwhip29

Looking at this it is hard to believe it wasnt in the works for some time. My guess is that the timing of this warm and fuzzy pre-holiday announcement was carefully thought out…

https://homeownerservices.bchousing.org/housing-assistance/bc-home-partnership.html

fomostyle
Guest
fomostyle

Quote today from Kremlin with regards to “Russian interference” in US election. But it kinda fits this too…

It’s not the general public who’s being manipulated,” Zakharova said. “The general public nowadays can distinguish the truth. It’s the mass media that is manipulating themselves.”

Hyper-mega-Bull
Member
Hyper-mega-Bull

quote of the month.

Abdul Lahazi
Guest
Abdul Lahazi

Would this scheme work?
As a first time buyer I qualify for my high ratio CMHC insured mortgage by getting my “free” $37,500 but my mortgage is open and can be paid off anytime. So i pay it off with another mortgage (2nd mtg which I would then pay off) and then get a new conventional uninsured mortgage (by making > 20% DP) and get to keep the $37,500 interest free for the 5 years. My “scam” being to finagle the $37,500 out of the government when I don’t really need it to buy something. This would work if I had enough cash on hand to make the > 20% DP later on the new mortgage.

patriotz
Member

It won’t work because the “free” BC loan would be senior to any subsequent mortgage on the property. So the new conventional uninsured mortgage would be the 2nd mortgage which means you couldn’t get one. As well you don’t get the CMHC insurance fee back if you prepay the original mortgage so you’re behind money wise anyway.

I think what’s going to happen is people who actually have the $37.5K are just going to spend it and use the BC loan for the DP. IMHO the government knows this perfectly well and in fact they want this to happen. More consumer spending.

bullwhip29
Guest
bullwhip29

what’s going to happen is FTHBs will just wind up paying more for their homes (or get less for the same money). govt subsidy always ends up being baked into pricing for any product, service or benefit that qualifies. this policy will benefit the developers more than anyone else

Newcomer
Member
Newcomer

Agreed, except for the last line. It will benefit the BC Liberals more than anyone else. This is an attempt to prop up prices until after the election, at the expense of people so poor they cannot come up with a 5% DP. It’s the modern day equivalent of human sacrifice on a hilltop.

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