There is one increasing trend
Comparing 2020 to 2021, the share of first-time buyers using windfalls as home down payments was higher for each month and has kept increasing, according to online brokerage nesto.
The share of nesto users who indicated using a financial “gift” for their first home purchases spiked during the pandemic, from just 5% in January 2020 to a peak of 15.76% in March this year.
“Especially popular amongst first-time home buyers faced with purchase price increase and bidding wars, it’s become more and more common for parents or relatives to help their children access property by getting financially involved in the down payment,” nesto said in its latest market report.
“Considering the Canadian household debt service and the increase in property value, it is safe to assume that young Canadians are having more difficulties accessing homeownership,” nesto said.
Financial gifts are also accounting for a progressively large portion of Canadians’ down payments, nest said. From 30.67% in January 2020, the proportion spiked to a record high of 64.86% in April that year.
While the share has moderated since then, gifts still represented approximately 50% of down payments made since the spring season this year. The year-to-date average share as of August was 48.88%.
For the majority of these gift-users, the funds “are mostly used to reach 20% down payment, thus avoiding mortgage insurance payments,” nesto said. “According to our data, 16% of those who choose to put 20% down will use a gift to do so.
“The next use for this gift will be to reach the minimum down payment of 5% needed to purchase a first property, at a proportion of almost 14%,” nesto said. “Considering the cost of mortgage insurance in Canada, it is understandable that buyers want to maximize their down payment to avoid these additional costs.”