First-time homebuyers turning to mom, dad for financial assistance
More young Canadians are turning to their parents to help find financing when purchasing their first home.
According to BMO’s 2015 Home Buying Report, 42 per cent of first-time buyers are expecting their parents or relatives to help pay for their first home. Up 12 per cent from
last year, the number shows Canadians needing a helping hand to enter the market is on the rise.
“Because of my parents help, I was able to afford a higher-priced home and have smaller mortgage payments – which is what I notice the most in terms of saving money right now,” said new homeowner Ashly Streeton, one of those who benefited from the benevolence of her parents.
Streeton, who recently purchased a condo in Connaught, said her parents helped by doubling her down payment to 20 per cent, not only reducing her mortgage payments but also allowing her to expand her search.
“I would have only put either five or 10 per cent down if I didn’t have help with my down payment,” she said. “At first I started looking at condo’s below $300,000 because I didn’t know the amount [my parents] would be giving me and that’s all I could afford on my own. Once they came around to deciding on an amount to give me, I started looking at places that were up to $350,000.”
The report also revealed half of those surveyed said they would not have been able to afford a home without outside help, despite the fact both first-time and move-up buyers reported spending less on their homes.
First-time buyers depending on family help expected family to pay an average of 12 per cent of the average cost of a home toward their purchase. Meanwhile, current homeowners depending on family help to upsize expected family to pay an average of 20 per cent of the average cost of the home.
According to the survey, first-time buyers’ budgets have decreased slightly to $312,700 in 2015 from $316,100 in 2014. Upsizers plan to spend $473,900 this year.
When it came to down payments – an area where many first-time buyers receive outside help – first-timers plan to put down 19 per cent, or $59,413, compared to 16 per cent, or $50,576 last year. Upsizers planned to put down 26 per cent, or $123,214, in 2015.
“My educated guess would be about 70 per cent of first-time buyers receive some type of financial help from a parent or grandparent,” said Calgary REALTOR® David Brown.
“With the increase in home prices, we are seeing it more and more. It is difficult for anyone starting out to come up with the required down payment and the additional burden mortgage insurers like Canada Mortgage and Housing Corp. put on the buyers to have 1.5 per cent for closing costs in addition to their down payment.”
Another area that saw a marked increase in the survey was the number of first-time buyers willing to enter a “bidding war” to obtain their first home, with nearly half (48 per cent) of those surveyed prepared to do so.
According to BMO Economics, population growth in the 25 – 34 age group is increasing at a steady clip, creating increased demand – particularly in major urban markets.
“The increase in competition from a growing number of millennial buyers is helping to push up prices in some major markets, leading some first-timers to rely on financial support to help them enter the market,” said BMO Capital Market senior economist Robert Kavcic.
While BMO ranked Alberta as the third most expensive province to purchase a home in Canada, a recent report from RBC showed Calgary still ranks as one of the more affordable major markets in the country.
Reflecting recent trends in the city, RBC’s latest Housing Trends and Affordability Report showed the cost of owning a home in Calgary decreased in the fourth quarter of 2014.
According to the report – which measures homeownership costs, including mortgage payments, utilities and property taxes – owning a detached bungalow in Calgary requires 33.7 per cent of homeowners’ average household income. That number placed Calgary well below markets such as Vancouver (82.4 per cent), Toronto (56.8 per cent) and Montreal (37.3 per cent). In Edmonton it’s 33.5 per cent.
“Calgary became a buyers’ market in the fourth quarter following a prolonged period of nearly three years when sellers had the upper hand,” said RBC senior vice-president and chief economist Craig Wright.
“Demand-supply conditions in most other local markets remained generally balanced with the exception of Vancouver, which stood out as a sellers’ market.”