The government of Prince Edward Island (PEI) is set to provide interest-free loans to Islanders starting in September, but the real estate sector in the province has doubts about the program’s ability to help people transition from renting into buying and owning their own homes.
The loans will account for 5% of the home’s price, and are intended to be used as a down payment on a property, as reported by CBC News.
PEI Real Estate Association President Greg Lipton said he understands the purpose of the project, having heard prospective buyers lament being unable to purchase a home due to the size of a down payment.
Lipton believes, though, that home prices have gotten so high that it might still be hard for Islanders to afford a home even with government help. Homes in the Charlottetown area, for instance, are likely unaffordable to renters since high demand and low supply of homes triggered increasing prices in the city.
"That's why [buyers are] going to have to be flexible," said Lipton. "That's why they're going to have to look outside the city limits."
Further, Lipton is concerned about the likelihood of mortgage approvals when the minimum 5% down payment is coming from a government loan.
"The lenders like to have anyone borrowing money to have some skin in the game, to show they can pay the bills right? Even if it's an interest-free loan, you're still going to have to be able to afford to pay that, plus whatever your mortgage is going to be," Lipton noted
Finance Minister Heath MacDonald said that the government loan will not affect Islanders' ability to obtain pre-approval.
"There's lots of competition between the financial institutions and mortgage holders," said MacDonald. "They want the business, and if we have people that meet their criteria, I don't foresee there being any obstacles from them lending money to individuals just accessing a down payment."
More to the point, the government will only issue these interest free loans to applicants who have been pre-approved for a mortgage.
The province said it's still completing many of the program's specifics, such as income thresholds, loan limits, and the allowed period of time when paying back the loan.
Canada housing market shows signs of life
Why homes are nearly unaffordable in Canada
Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate