Gifted down payments a sticking point for many families – law firm

The average amount of financial assistance by parents of first-time homebuyers has grown massively over the past half-decade

Gifted down payments a sticking point for many families – law firm

An increasingly common phenomenon is Canadian parents going to court against their children over gifted down payments, according to Toronto-based law firm Shulman & Partners LLP.

“I think it’s coming to a head because of the state of the housing market for so long,” senior associate Kevin Caspersz told BNN Bloomberg.

The average amount provided by older relatives to children who are buying homes swelled from $52,000 in 2015 to a record high of $82,000 in 2021, recent data from Canadian Imperial Bank of Commerce showed. The size of the average gift was even more pronounced in Toronto ($130,000) and Vancouver ($180,000).

During the same period, the share of first-time homebuyers who have received this help from relatives grew from approximately 20% to nearly 30%, CIBC said.

Read more: The growing influence of the “Bank of Mom and Dad”

To ensure the least amount of stress, agreements between parents and children should “absolutely be formalized to protect both parties,” Caspersz said. This is because verbal discussions or implied understandings will not suffice in a court of law.

Any document of this nature should include details on whether the money will need to be repaid, if any interest will be owed, if the child’s partner will benefit from any portion of the gift, and what happens if the child’s relationship gets dissolved, Caspersz said.

“It should be spelled out explicitly,” Caspersz said. “I think that's the problem that we’re starting to see – where parents have not done that … or even between the parties receiving the money – they haven’t come to a mutual understanding.”