B.C. first-time homeowners grant redundant in today's housing market
A government program for first-time homebuyers has failed to keep up with the escalation in property prices in Kamloops and the Okanagan, making life even more difficult for those trying to get on the property ladder.
The B.C. government's first-time home buyers' program allows homebuyers to be exempt from paying property transfer tax but only on properties sold for $500,000 and under, which in today's housing market completely excludes single-family homes across the region.
"You can still get the odd condo, (or) townhome in that price range that would be livable for a young family but (not) a single-family house," Vernon-based Monument Mortgages broker Daryl Eyjolfson told iNFOnews.ca. "If you find a house now for $500,000 it's going to be a fixer-upper, to put it mildly."
With the average assessed price of a single-family home ranging from $869,000 in Kelowna, to $619,000 in Kamloops, first-time homebuyers in those cities will be out of luck in qualifying for the program – if they can afford the homes in the first place.
But with the assessed value of the average single-family home skyrocketing across the region, housing in smaller and therefore cheaper markets has now crept up above the $500,000 cut-off.
Whereas homes in Vernon and Penticton, along with many other smaller towns, could be purchased for less than $500,000 18 months or so ago, the dramatic price increases mean that the government's initiative to help out first-time buyers has not kept up with the market.
The average price for a single-family home in Vernon is now $644,000 and in Penticton $637,000.
Even the small North Okanagan town of Lumby has passed the half a million-dollar mark with the average single-family home now at $503,000.
"It sucks that there has been responsible clients who have been putting money in their RSPs to save up for their downpayment and finally they get to somewhere where they need to buy a house, (and) the best thing that will work for them and their young family is $550,000 and now they don't get that first time home buyer property transfer tax exemption which is suppose to be a break to help them out while they're young and expenses are high," Eyjolfson said. "And it's not like they're living in a luxury house at $550,000."
At $500,000, an exemption from the property transfer tax saves a first-time buyer $8,500.
Eyjolfson said the program is out of date and should be bumped up to at least $600,000.
And the program has increased the exemption over the years as the market has grown.
In 2008, to went from $375,000 to $425,000 and in its last increase in 2017, it went from $475,000 to $500,000.
However, if would-be first-time homebuyers were thinking the provincial government may up the amount to qualify for the program they'd be wrong.
"Increasing the threshold for an exemption may risk increasing demand and sale prices for properties around that price point," a Ministry of Finance spokesperson told iNFOnews.ca. "While prices of different housing types vary across the province, buyers are able to access this program to purchase a variety of housing types, including strata units, townhomes, duplexes and single-family homes."
Vernon mortgage broker Jeremy Schaffner has been in the business for 15 years and agrees the program has now become redundant.
"If somebody is struggling to come up with $25,000 for a downpayment and then all of a sudden has to come up with (property transfer tax money) and an extra $2,000 for closing costs. It becomes extremely difficult," he said.
"The property transfer tax is a contentious issue on its own because B.C. is the only province that has it," Schaffner said.
While the Greater Toronto Area has a similar tax, other provinces don't have the tax that in B.C. charges one per cent on the first $100,000 and two per cent on every dollar thereafter.
A separate federal program that allows some first-time buyers to borrow five per cent and then pay back five per cent of the value of their home in the future hasn't been popular.
So where does this leave first-time homebuyers?
"Over the last five years we've seen a lot of gifting of down payments just to get into the housing market and then sometimes people's saving are going towards the property tax and the closing costs," Schaffner said.
A 2021, CIBC report found that roughly 30 per cent of first-time homebuyers across the country were relying on their parents for a down payment and receiving an average gift of $82,000.
In Vancouver that number jumped to $180,000 and in Toronto $130,000.
Both mortgage brokers agree parental gifts existed a decade or so ago but weren't anyway near as prevalent as they are today.
"It's an avalanche of predicaments for a new homeowner, as rent increases the ability to save for a down payment decreases and then all of a sudden you're a lifelong renter," Schaffner said.
"It is the passing of generational wealth. If your parents owned a home then potentially they have the equity down the road to help you buy a home, but if your parents didn't own a home you could be out of the market," he said.
For its part, the B.C. government says it's four years into a 10-year plan which is the largest investment in housing in B.C.’s history.
The Ministry of Finance says this year’s budget saw an additional $2 billion investment into the construction of thousands of new homes for middle-income families.
“Everyone benefits from a balanced market and we, as a nation, benefit from people owning homes,” Schaffner said.
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