Family matters when buying a home
Canada’s hot housing market is having a cooling effect on potential homebuyers wanting to enter the market for the first time.
Canada’s hot housing market is having a cooling effect on potential homebuyers wanting to enter the market for the first time. With housing prices trending higher it is becoming increasingly difficult for first-timers to come up with enough funds for a down payment
– that is why more and more first-timers are turning to relatives for help.
According to a recent study*, the percentage of Canadians who received financial help from relatives to get into the housing market in 2016 was 45% in Québec, 42% in British Columbia, 38% in Alberta, 35% in Ontario, 33% in Manitoba and Saskatchewan and 18% in the Atlantic provinces. That’s a lot of support, much of it coming from Boomer parents making it financially possible for their adult kids to buy their first home. Add to this, the new mortgage measures introduced by the Department of Finance last fall and the numbers may just increase.
Under the new rules, all homebuyers seeking an insured mortgage will be subject to a mortgage rate stress test. Previous to this, only borrowers who opted for a variable rate mortgages or fixed rate mortgages with terms of less than five years were required to pass a stress test. The test measures whether the buyer could afford to make mortgage payments in the event interest rates rise.
The stress test also requires a ceiling of no more than 39% of household income being required to cover home-carrying costs such as mortgage payments, heat and taxes.
Some experts are predicting that the new rules will limit the options available to potential homebuyers – especially those trying to break into the market for the first time.
Buyers who might not be able to qualify under the new rules may need to scale back their dream home because the down payment they can afford is not enough to qualify for the mortgage amount they need or, look to other options: find more money for the down payment or add another person to the mortgage. In both cases that answer could be the assistance of a Boomer parent.
If you’re planning to buy for the first time, sooner may be better than later to avoid even higher housing prices and/or mortgage rates. If you’re a Boomer parent or grandparent wanting to help your adult kids afford their first home, first find out how best to do that without undermining your own finances. A good place to start – having a conversation with your professional advisor.
This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.