The provincial government’s new 2% downpayment program is exclusive to participating credit unions
The announcement by Nova Scotia’s provincial government that it was slashing the minimum downpayment for first-time homebuyers to 2% turned heads in the mortgage industry last week – and likely found plenty of favour among credit union executives across the province.
That’s because the program, announced in a bid to improve affordability for younger hopeful homebuyers in the province, will be made available only through participating credit unions.
The move excludes big banks and other major lenders, presumably an effort by provincial authorities to tightly manage the rollout and control risk.
There’s a host of other caveats for buyers who want to use the scheme: a minimum credit score of 630, status as a permanent resident, citizen or immigrant with an endorsement certificate, and proof of ability to manage higher payments through the stress test.
Buyers will also be capped at a purchase price of $570,000 in Halifax Regional Municipality and the Municipality of East Hants, and $500,000 outside that region.
Still, the news has sparked speculation that Nova Scotian credit unions could be poised for a big uptick in business as the program’s exclusive lenders.
Eighteen credit unions across the province currently hold over 144,000 members and are the only financial institution in 17 Nova Scotian communities, according to the Canadian Credit Union Association.
Brokers step up to the plate
When the news broke last week, Nova Scotia mortgage broker David Clarke (pictured top) flagged the potential challenges credit unions – many of which he said are understaffed – could face from a sudden upsurge in first-time buyer business.
And he told Canadian Mortgage Professional brokers will have a crucial role to play in helping educate borrowers who are unfamiliar with how credit unions work, especially when it comes to possible higher interest rates.
He sees a potentially bumpy first few weeks of the program, particularly if realtor advertising doesn’t clarify that the advertised downpayment is only available from specific credit unions.
“I don’t know how they’re going to navigate this influx of people that are going to be only able to get mortgages from the credit union,” he said. “I don’t know if our market has ever had anything quite like that – this special thing that only these credit unions can do and not the major banks.
“As an example: somebody’s got seven days to get financing on a purchase and sale agreement, and the realtor advertised a 2% downpayment and they go to a credit union and it takes them a while to get it done because of staffing issues, and then maybe [the borrower] doesn’t like the interest rate… I think it’s just going to cause a lot of friction for a bit.”
Challenges and opportunities ahead for credit unions
Nationally, credit unions accounted for 18% of originated mortgages in the first half of 2024, according to Canada Mortgage and Housing Corporation (CMHC). That remains a fraction of what the big banks are funding – but represents a growing segment of the market.
And Clarke doesn’t think many brokers in Nova Scotia will roll their eyes at the prospect of having to do business only with credit unions if their first-time buyers want to avail of the 2% downpayment program.
“I really enjoy credit unions because they seem a little bit more personalized,” he said. “I don’t necessarily think that they’re any different from lenders from a document perspective or trying to get something done.
“It seems like a lot of lenders across the board ask for the same documents and things like that. So they’re just an important partner and they play an important role.”
One concern, though: if the new first-time buyer program proves to be a lucrative one for credit unions, Clarke believes they might turn away from other types of business.
“My fear on the credit union perspective, and this is pretty speculative – if they can make money charging somebody 2% higher on a rate for a province-backed mortgage, I don’t know why they would ever refinance people,” he said, “and I don’t know why they would continue doing mini-homes.
“They’re the only refi option you have for mini-homes, and I worry a little bit about the credit union niche products from the bottom line if they’re getting 6% money on a province-backed mortgage versus 4.5% money on something that’s not. It makes perfect sense for them to focus on the higher money that’s protected.”
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