The province is counting on credit unions to fund a flurry of new 2%-down mortgages
Nova Scotia’s government is taking what it’s billed as a huge step to boost housing affordability in the province: cutting the minimum downpayment for first-time buyers to make it easier to save for a home purchase.
The First-time Homebuyers Program, announced by provincial housing minister John White, will trim the minimum downpayment to 2% with the government guaranteeing the mortgages, which will be funded by participating credit unions.
White said the move was an effort to help more homebuyers in their twenties and thirties onto the property ladder and reverse a trend that’s seen homeownership steadily “slipping away” from those Nova Scotians.
Could credit unions struggle to cope with higher volume?
Early reaction from the province’s mortgage broker community has been positive, although David Clarke (pictured top) of TMG The Mortgage Group told Canadian Mortgage Professional there could be some teething problems.
Offering the lower downpayment only through provincial credit unions rather than major lenders makes sense, he said, but it remains to be seen how they’ll cope with a potential influx of new enquiries.
“Understaffed credit unions were already kind of navigating their workload and trying to get things out as quickly as they could,” he said.
“So a big influx of first-time homebuyers who don’t really know the rules, don’t really understand the credit requirements and all that different stuff going to the credit union and then finding out that their interest rate is going to be higher because there seems to be a surcharge on this – I think there’s just going to be a big disruption.”
The program is still a “terrific” one, he added, that should see plenty of uptake and change the affordability picture for scores of buyers.
And it’s good news for brokers, who have a clear opportunity to provide further value for first-time buyer clients by steering them through the various features of the program and what it means for their own purchasing power.
“The more confusing everything gets, the more it seems like people just want to talk to a broker and have that person to bounce things off of,” Clarke said.
“I just think from the fact that it’s not offered at the bank, it’s going to increase volumes to credit unions that they aren’t going to be used to – and I just don’t know how they’re going to navigate that.”
What’s more, Clarke said some realtors are already advertising the new 2% downpayments online without clarifying that they’re not available through major lenders, potentially leading to problems when borrowers face a longer wait to secure financing than they otherwise might with one of the big banks.
And with credit unions usually offering higher rates than banks, buyers would also likely face a steeper monthly payment than they would with a Big Six lender. Still, Clarke doesn’t see that as a huge issue.
“One of the biggest entry barriers into the housing market is downpayment, and in our area rents are so expensive that I think people would feel pretty blessed to be able to get into the housing market,” he said.
“I think the affordability thing is a [factor], but I don’t necessarily know if that would deter people from doing it.”
New opportunities open up for mortgage brokers
The program will be open only to Nova Scotia residents who are Canadian citizens or permanent residents, or have a government sponsorship letter, with a household income of $200,000 or lower, who can pass Canada Mortgage and Housing Corporation (CMHC) stress tests and have a credit score of 630 or higher.
Nova Scotians who previously owned a home but haven’t done so in the last four years may also be eligible.
Maximum home prices for buyers in the scheme are capped at $570,000 in the Halifax Regional Municipality and the Municipality of East Hants, and $500,000 for the rest of the province.
Those caveats make it a responsible and well-structured program, Clarke said, once the initial adjustment period for credit unions is over.
He said now is the time for brokers to tap into and expand their book of realtor and credit union contacts. “I think it’s an excellent opportunity for brokers to talk to their realtors. We don’t always have a good reason to reach out – this is one,” he said.
“I would reach out to the credit unions and League Savings and find out as much information as you can. Educate yourself, talk to every realtor. I think it’s just a good excuse for us to get out there.”
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