Free Money From The Government

February 4th, 2008 by Potato

There was an article in the London Free Press that made my head spin. The government is giving away free money (forgivable, interest free loans).

And very few people are taking advantage of it.

I have no idea why the government has this program (presumably to encourage home ownership or to prop up the bottom of the housing market), and the article doesn’t really give any reasons.

Funded by the senior governments but administered by municipalities, the program gives qualified renters a five or six per cent down payment. The loans usually run between $5,000 and $7,000.

The money must be paid back if the home is sold within 20 years, otherwise the loan is forgiven. Renters must get a pre-approved mortgage amount and have an annual household income below a maximum amount, which in London is $50,000.

No one is sure why the program hasn’t produced the expected flurry of applicants.

The London program had a tight deadline and a price limit of $120,000 on any home bought through the program. London launched the program Jan. 9 and expected to receive as many as 1,000 applications for 120 available loans. Officials planned to decide the “winners” through a lottery.

But by the deadline day Thursday, only 25 people had applied. A late rush boosted the total to 60.

[quoted out of order]

Wow, an interest free down payment, and if I stay in the house for 20 years, the money is free? If I was looking for a house, you could sign me up. Hell, I’d take two. I wonder why I hadn’t heard of this before?

Louise Stevens, London’s director of municipal housing, said the program was well-publicized in London in lending institutions, libraries, realtors and the media.

“We promoted the heck out of it,” she said.

Now granted, I’m not shopping for a house so I don’t talk to realtors or shop for mortgages, but I still never heard about it in the media or libraries. They must have hired the same advertising agency who spread the word about electoral reform. (What? Exactly.) In fact, here is an article on this program, and through the whole thing the program is never given a name! It’s simply “the program” or “a program”, no name, no website, and no managing department to contact (the closest we come is the “Municipal Affairs and Housing Ministry in Toronto”, which is I gather not the London part administering this program, and the name Louise Stevens).

Still, it seems like a somewhat silly program: while an interest-free loan of $5000 is nothing to sneeze at, it’s probably not going to make the difference between a renter getting a house or not. The article doesn’t mention whether that 5% down payment figure is the only down payment the prospective buyer would be allowed to make: i.e., could they take $15,000 of their own savings and make a 20% down payment? If so, that might be a killer, as the extra payments from having to carry mortgage insurance would quickly eat into the government’s interest free down payment.

Or maybe it’s that price ceiling: $120,000 doesn’t buy a heck of a lot in London these days. If I had a salary of ~$50,000 I could rent some awful nice houses (like the one I’m in now!) or 2/3 bedroom apartments and have some income left over for a car, savings, etc. (whatever it is people who don’t use all their money on food and housing spend it on). According to MLS, there’s only a handful of places under $120k in North London: 11 condos and 2 houses; half of those are one-bedrooms; about 120 in all of London. Granted, that’s just right now, and there could be more over a longer period of time (or before the “rush” on Thursday); but it would be a close thing indeed to potentially enough to fill this program in the span of just a month. I highly doubt there would be 1000 such places, as the London officials seemed to expect.

Sometimes I wonder where people get their ideas from. In searching for this program, I found an article from Jan 9 in the London Free Press announcing the beginning of the program, where they say that there were “22 homes and 83 townhouse or apartment condos for less than $120,000 in London.” Having read that then, how could they have possibly expected so many applicants? Sure, more renters can apply than there are homes, but to get 10 unique prospective buyers per house? That earlier article also gives this snippet of information: “If the home is sold within 20 years, the buyer must pay back the original loan, without interest, plus five per cent of any increased value of the home.” Now I think that this would probably work out quite well for the homeowner, but if you’re expecting your home to double in value within 3 years and then move, that little clause might send you off. On further thought, there’s another good reason why this program was doomed to failure: let’s say you were a renter/prospective homeowner, and wanted a house in the $120k neighbourhood. Or even more appropriately, someone who didn’t qualify for this program (an existing homeowner, or someone making over $50,000/year). Knowing about this program, you’d realize that there would potentially be a bidding war fueled by government money on houses/condos under $120k, and that all those bids would be capped at $120k. So if you really wanted a particular place, you could probably safely bid $120,001 and come in as the highest bidder (at least, higher than the government-handout mob).

Oh, and that earlier story has a web address for the program: but it’s wrong and points to a domain squatter instead. The proper address should be

God the Free Press sucks. One of these days it’s going to get to the point where I’d rather do work than read the LFP. I think that day might be tomorrow.

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