Vancouver real estate prices got a boost in the first quarter from the BC government’s subprime lending program. The BC Home Partnership and Equity Program fueled almost 7% of Metro Vancouver buys in the beginning of the year, but don’t expect that pressure to continue. New numbers obtained from BC Housing show that applications for the program have slowed dramatically. The rate of applicants dropped just over 29% in the previous five months, when compared to the first quarter.
BC Home Partnership and Equity Program
The BC Home Partnership and Equity Program is a downpayment assistance program rolled out earlier this year. First-time homebuyers with a high-ratio mortgage, can apply to the BC government for up to 5% in down payment assistance. This money registers as a second mortgage against the property, and is interest and payment free for the first five years. The advantage is it temporarily reduces your payments, helping buyers manage the cost of homeownership. The disadvantage is it pushes in a new pool of buyer’s, providing additional pricing pressure. The latter may actually eliminate the benefits of the program, since those borrowing 5% are sending prices more than 5% higher.
BC Home Partnership Had 2,623 Applicants
Applications for the program are still rolling in according to BC Housing. As of September 1, 2017, the program has received 2,623 applications. From a previous data release, we know that 1,208 of those applications were filed in the first quarter. To break that down, the first quarter averaged 402 applicants per month. Since then, the rate has dropped to an average of 283 applicants per month. Applications are slowing, but that’s still equal to 9 people per day applying for down payment assistance.
1,135 Mortgages Have Been Funded
Despite slowing applications, the program is fueling a substantial amount of mortgages. Currently 200 applicants are in an unconditional contract of purchase, representing $3.1 million in down payment assistance. As of September 1, 2017, 1,135 mortgages have been funded, representing $16.5 million in down payment assistance. Those numbers might not seem huge, but distribution is key to how this impacts sales.
This works out to just under 2% of purchases in the province, which is nothing to sneeze at. You also have to remember that these only apply to high-ratio mortgages, which can only be used on a mortgage less than $750,000 in value. Additionally, while they didn’t specify what regions they are from this time, almost half of these loans in the first quarter were for Metro Vancouver buyers. This provides additional pressure to “lower” priced homes in the province, especially if concentrated in certain regions.
One Person Has Paid It Off
A curious statistic surfaced in the stat update, someone has paid the loan off already. Since the loan is interest free for five years, and the buyer is in a high-ratio mortgage, it’s unclear why the buyer would tackle the cheapest debt first. Unfortunately, BC Housing couldn’t provide further details, but I can only think of three reasons why someone would do this:
- They don’t like having debt on their books, and didn’t care that they were tackling the cheapest debt first.
- They had a sudden windfall over the past 8 months, and were able to pay off all of their debt at once.
- They sold the property. Condos are 17% higher in Metro Vancouver in July than they were in January, representing an increase of ~$88,000. If it’s this one, that’s a pretty impressive haul.
The BC Home Partnership Program was designed to bring new buyers into the market. Whether this was an intentional move to increase home sales is debatable, but it did provide additional pricing pressure beyond what the normal market could support. The problem with throwing the market lifesavers like these, are people expect you to throw them more lifesavers when the impact starts to wear out. Not sure what the next one the BC government will throw homeowners, but I somehow doubt they’re going to adopt a laissez faire approach from here. Although I would love to see them prove me wrong.
Like this post? Like us on Facebook for the next one in your feed.