British Columbia

Applications For BC’s Down Payment Assistance Program Slows Down

Applications For BC’s Down Payment Assistance Program Slows Down

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.

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6 Comments

  • Reply
    BC Liberals Suck 2 months ago

    The BC Liberals may be gone, but their legacy will screw us forever.

  • Reply
    Ahmed 2 months ago

    77% of Canadians can’t afford $130 more per month in costs. Those who took out a BC Homeowner loan, will get hit with ~$200/month. Possibly more, since interest rates are set to go higher over the next few years.

    If you had a little extra room in your budget, and you can absorb the $200/month hike, good for you. I hope you do something constructive with that money right now. If you can’t, hopefully you sell and make a little profit before the debt reaper catches up to you.

  • Reply
    Jeff Patrick 2 months ago

    Great Article Kaitlin. I love the numbers! This is a good program from the B.C. Government. Anytime you can get interest free money to invest in Real Estate it’s a good deal. You can always rent the Property if you get stuck. In my opinion Vancouver real Estate Prices will go up another 20% in the next 2-3 years. Interest Rates will rise in the Short Term but in a few years I believe you will be able to obtain First Mortgage Funds at less than 1% Interest. Buy if you can. Cheers.

    • Reply
      Chad 2 months ago

      Jeff, are you a realtor? What are you basing your 20% appreciation on? And with a likely rate hike tomorrow (with the charter banks already hiking their rates a month or two before) how are you seeing that we will see ability to borrow less 1%?? At that rate, are you suggesting that the Canadian economy is going to slow down in the next 2-3 years, enough to get policy makers to slash our lending rates even further?

      • Reply
        Jeff Patrick 2 months ago

        Hi Chad. Thanks but no I’m not a Realtor. I am suggesting the Canadian Economy will slow down caused by raising rates unnecessarily. This will happen over the next 1-2 years. Higher rates (3%-4% CDN Bond) Yields will cause a hard recession. Bond Yields will then go Negative (world Wide G7) to Stimulate Growth. Wealthy Pension Funds, Soverign Wealth Funds will buy Government Bonds as the least risky Asset to invest in with No Growth. Mortgage Rates will fall to .5%-1%. You will have to pay larger fees to hold your Capital on deposit with banks. Banks will not be as Profitable with interest rate spreads and make Profits on higher Fees. In Victoria and Vancouver there are charts out there somewhere that show the price of Residential Real Estate has consistently doubled every 10 years for the past 80 years. Cheers.

        • Reply
          Chad 2 months ago

          Jeff, a super bearish view and rather contradictory. not sure where you’re getting your facts, but for such a scenario to play out and CDN RE to rise another 20% is hard to accept because Canadian’s are already stretched with the debt-to-income ratio around 170% (the highest it’s ever been). Plus for the CDN economy to contract so much in a such a short amount of time that yields will go negative may actually signal businesses to scale back production. That leads to unemployment, and then who’s got the money to purchase houses at even higher prices (take on even more debt)? You should take a look at the price history data from the Greater Real Estate Boards, there you’ll find that RE has not consistently doubled, contrary to your statement. The 80’s and the 90’s were years were RE growth was nominal at best and actually pulled back for a few years in the Vancouver area. To close, suggesting an ultra low yield environment in Canada would further appreciate RE prices in the next two years is not a sound view, in my opinion.

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