Finally, we get a look at numbers for the newest loan scheme going on in British Columbia – the BC Home Partnership. The BC government released an update on the first quarter this program has been running, and boy was it popular. The subprime borrowing scheme was so popular in fact, it may have added pressure to prices. Ironically, this effectively kills any advantage it would have given.
BC Home Partnership
If you’re not from BC, you likely have no idea what the BC Home Partnership is, so here’s brief intro. The BC government will give a first-time buyer up to 5% of their down payment, on a high-ratio mortgage of up to $750,000. The loan is interest and payment free for the first five years, and you have 25 years to pay it off. The loan is registered as a second mortgage, so congrats! You’re a first-time buyer and now you’ve got two mortgages. The rest of the country is totes jealous. It’s almost like you’re teasing us with your low, low rates.
“But It’s Not Subprime, We Don’t Have That In Canada”
The last time we called it a subprime mortgage, we got bureaucrats emailing us to explain “it’s not subprime.” Sure, because Canada is one of the few English speaking countries to call subprime “non-prime.” They’re pretty much the same, except they’re spelled and pronounced differently by the Canadian mortgage industry. When someone has poor credit, insufficient credit, and/or insufficient capital but gets a loan anyway – they are subprime.
The big problem is that subprime is considered a bad word by Canadians, when in reality academics are still debating if it’s bad or not. Subprime borrowing is a form of “mortgage innovation.” Princeton Professor Harvey S. Rosen defends this kind of mortgage innovation in an NBER paper, claiming subprime programs “help” people that would be otherwise locked out of homeownership. Whether everyone should be a homeowner is a debate for another day, but the point is subprime isn’t a dirty word. So quit becoming defensive when your “mortgage innovations” fall into this category.
Vancouver Saw 6.6% of Sales Backed by This “Partnership”
The interesting thing about this loan is they appeared right around when Vancouver real estate prices reversed. In the first quarter of 2017, the BC government received 1,208 applications for the Home Partnership program. Metro Vancouver was just over half of those with 610 of those applications, 503 of them approved. This is the equivalent of 6.6% of sales logged through the Real Estate Board of Greater Vancouver (REBGV). These extra sales added demand pressure, likely adding more than 5% to prices.
If the goal was to issue more cheap credit to keep things floating, mission accomplished. The extra credit that won’t be felt by consumers for another 5 years, and definitely added more buyers to the buying pool. If your goal was to make housing more affordable, mission failed. The more than 6% of additional buyers turned prices higher, to the tune of 8%. That kind of killed the advantage of domestic buyers getting a 5%
teaser loan Home Partnership contribution, doesn’t it?
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