Gifted downpayments are increasingly common in Canada's housing market amidst affordability woes
A recent report by Statistics Canada shone a light on the housing affordability crisis facing scores of Canadians, indicating that those with homeowner parents are twice as likely to own a home themselves as those without.
The study, which delved into the link between parents’ residential property ownership and the likelihood that their 1990s-born children own residential property in 2021, exposed that significant discrepancy – with an even bigger gap between the children of multiple-property owners and those whose parents do not own.
“The adult children of parents who owned more properties had a greater likelihood of homeownership,” StatCan’s report said, “and this higher rate increased with the number of properties their parents owned.”
Across Canada, just 8.1% of adults whose parents are not homeowners owned a property themselves in 2021, according to StatCan, with that figure growing to 17.4% among those whose parents had any number of properties.
‘Bank of Mom and Dad’ continues to exert influence in housing market
As affordability has shot out of reach for many would-be buyers in recent years – particularly those hoping to purchase for the first time – the prominence of the so-called “Bank of Mom and Dad” has grown in Canada’s housing market.
In 2021, Canadian Imperial Bank of Commerce (CIBC) indicated that the share of first-time buyers who had relied on a gifted downpayment from family to fund part or all of their home purchase had risen from 20% to 28% since 2015 with the average amount received rising to $80,000.
That was a trend most evident in Canada’s two priciest markets, Ontario and British Columbia, but one that now appears to be spreading elsewhere as borrowing costs continue to tick upwards.
David Clarke (pictured top), a mortgage broker with TMG The Mortgage Group based in Dartmouth, Nova Scotia, told Canadian Mortgage Professional that he had seen a growing number of new buyers relying on financial assistance from their family to buy a home.
“It’s a trend that I just think I’ve never seen before: first-time homebuyers, right now, they’re all getting gifts from their family,” he said. “And they’re not small gifts either. I’m seeing a lot of six-figure gifts, and that was never a thing in our area.”
The Canadian federal government plans to allocate approximately $20.8 billion over six years to incentivize the development of housing supply and address affordability challenges.— Canadian Mortgage Professional Magazine (@CMPmagazine) November 22, 2023
Read more: https://t.co/D9lgDIdqgl#mortgageindustry #housingmarket #housingsupply #affordability
Why are gifted downpayments on the rise in Canada’s housing market?
That shift appears to have been spurred both by rising interest rates and home price appreciation in the province, Clarke said, with both having been noteworthy features of the market in recent times.
While fixed interest rates have ticked downwards over the past several weeks, they’ve seen a big upswing since the COVID-19 pandemic, while the Bank of Canada has also hiked its own benchmark rate 10 times since March 2022 to combat surging inflation.
Home prices, meanwhile, have remained resilient across the country despite the recent housing market downturn, leaving little relief for would-be buyers in a cooler buying environment.
“It’s because the starter home in our area is $450,000 or $440,000 and people’s income can only qualify them for $300,000 – and the family’s kind of coming up with the difference a lot of the time,” Clarke said.
“I talk to other brokers and some realtors, and they’re seeing that too. There’s a lot of big gifts for first-time homebuyers.”
While the option opens the door to homeownership for many who would otherwise be priced out of the market, it also widens the gap between those whose families are in a position to pitch in financially and those who must go it alone.
Many homeowners in Nova Scotia will have seen their property’s value rise significantly over the past few years, especially since the housing market boom of the COVID-19 pandemic – meaning the growing trend of gifted downpayments is likely tied to new and increasing equity.
“But it makes it really hard for people that don’t have parents that own home or things like that, because it seems like this transition of wealth is how people need to buy homes now,” he said. “In our area, we never had that before.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.