The provincial government has announced a new loan for first-time homebuyers, which will come into effect in January 2017; and a local realtor says that it’s “definitely going to be an opportunity to get first-time buyers into the market.”
Hedda Hall, a broker and the owner of Royal LePage Ashcroft Realty, cautions that there are pros and cons to the loan, however. The government has said that the loan—which will be classified as a second mortgage—will be interest-free for the first five years. After that it will be subject to the current interest rate, and must be paid off within 20 years.
“If the first-time buyer handles it properly—if you can put aside money and pay it off in the first five years—it’s good. But if you can’t handle it properly, there could be a problem. Who knows where interest rates will be in five years? And if the interest rate goes up, it will be a burden.”
She feels that the loan is designed to help people trying to break into the hot Vancouver real estate market, where prices have skyrocketed in recent years. The average price of a single-family home in the Vancouver area is $1.47 million, and while the loan is only available for properties valued at less than $750,000, it can also be used by people looking to purchase an apartment, townhouse, or condo.
The average price of a single-family home in the Ashcroft/Cache Creek area is $200,000 to $250,000, which Hall says is below the national average, although property prices have increased here as well.
Speaking to The Globe and Mail, Rich Coleman, the Minister Responsible for Housing, said that when he thinks about who will benefit from help with a down payment, he casts his net wider than Vancouver, Richmond, or Burnaby. “A person in Penticton or Clinton or Prince George is also benefiting from this in housing markets that are also softer.”
The loan is restricted to people whose total household income is less than $150,000, and is intended to match money they have already raised for a down payment. The amount of the loan is capped at $37,500, or five per cent of the property’s purchase price, whichever is lower.
To be eligible, buyers must be preapproved for an insured high-ratio first mortgage (one where the mortgage down payment is less than 20 per cent of the purchase price). They must also have been a Canadian citizen or permanent resident for at least five years; have resided in B.C. for at least one year immediately preceding the date of application; and must use the property as their principal residence for the first five years.
Any balance left on the loan must be repaid in full when the house is sold, or transferred to another owner. The loan program will run for three years, and the government estimates that it will invest some $703 million in it, and help an estimated 42,000 homebuyers enter the market for the first time.
“It’s a good situation, as it gets first-time buyers into the market,” says Hall. “But you have to handle it properly.”