By Dominic Abassi

Nanaimo MLA says Liberal lending plan is ‘bad policy’

Dec 15, 2016 | 4:57 PM

NANAIMO — The MLA for Nanaimo says a Liberal plan to help first-time homebuyers get into the market has the potential for disaster.

Premier Christy Clark said Thursday the government will provide a 25-year loan for a down payment to a maximum of $37,500 on funds that have been matched by buyers. The loans will be interest-free and payment-free for the first five years.

The NDP’s Leonard Krog says home ownership is wonderful and it’s a goal for the vast majority of British Columbians, but the Liberal plan is the wrong approach.

“Encouraging people to go in debt even deeper than the rules would normally allow is going to lead potentially to a disaster,” said Krog. “If there’s a downturn in the housing market, as will inevitably be, those people will see their equity such as it is disappear and they’re still going to owe the money.”

The program applies to homes with a maximum value of $750,000 and the interest-free portion of the loan will last for the first five years, with the repayment schedule at current interest rates over the remaining 20 years. Homebuyers with less than $150,000 combined household income are eligible.

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Krog says he has lived too long and seen too many fluctuations in the housing market to believe that this is good policy.

“If the government wants to help people purchasing housing they need to encourage the industry itself to build that housing, to drive down the market cost of housing,” Krog said.

He says it’s bad public policy to simply encourage people to buy a house when they probably can’t afford it.

“People need a partner in scraping together that first down payment,” Clark told a news conference.

“A home is a place where you live and raise your family and start your life,” she said of the three-year program that starts next month.

Bill Fraser, a mortgage advisor with Dominion Lending Centres Van Isle, says typically 30 to 40 per cent of the people they deal with are first-time homebuyers. Today’s announcement is something that will help them, as opposed to some of the changes recently that have been restrictive.

“It’s really focusing on people who just can’t afford to save that five per cent for a down payment nowadays,” said Fraser. “Market values have increased so it’s a lot harder to come up with that…this is going to absolutely help that crowd.”

Fraser says people will still need to qualify for borrowing under the new rules that are in place, so it’s not going to open up a whole new market.

The best part about the Liberal plan is the no-interest, no-payment plan, according to Fraser.

“As a first-time buyer part of that shock and struggle may be that first month with all these new payments. The last thing you want to have is another loan payment…kind of getting used to your payments and then renegotiating things after the five years when things are more settled.”

A B.C. Housing Ministry document estimated the program will save the homebuyer $5,201 in interest payments over the first five years of the mortgage, at an estimate of three per cent.

–With files from The Canadian Press–