Brian Cosburn knew his daughter and husband couldn’t afford a house in Mississauga, near where his family has lived for years. With prices in town exceeding $ 1 million, there was no way for them and their young family to enter the market.
“They both have good jobs, but that was the down payment,” said Cosburn, 74, a retired maintenance operator for a Bay Street tower.
But Mr. Cosburn and his wife were able to help. Most of his money was in a registered retirement savings plan, and he didn’t want to touch it because of the taxes he would pay on the withdrawal. But they had paid off their home 15 years ago and decided to tap into that equity through a reverse mortgage, which must be paid off on the sale.
They were able to give their daughter the equivalent of a 25 percent down payment so that she and her husband could buy a house and use the income from their employment to make the monthly mortgage payments.
“My daughter was just starting and has two grandchildren and that’s how it is. You are trying to help your family, ”he said.
More and more Canadian parents find themselves in this situation, seeing their children excluded from the real estate market and eager to help. The amount of money they give their children to buy a house is rising sharply, speeding up the transfer of wealth from one generation to the next and contributing to soaring house prices.
And the rise in prices allowed them to acquire equity. They don’t just dip into their savings, but they put forward inheritances and in some cases, like Mr. Cosburn’s, they remortgage their own properties.
Neither Statistics Canada nor the Canada Mortgage and Housing Corporation tracks intergenerational wealth transfers. But the Rennie Goup, a Vancouver-based real estate brokerage and research group, estimates that about 70% of Canadian homeowners over 65 have no mortgages and have $ 1.2 trillion in equity in their homes. their house. This is an increase from $ 805 billion in 2016, according to the group’s calculations using data from the 2016 Census and the Canadian Real Estate Association.
“Parents who have no mortgages or liabilities increase their own responsibilities to let their children buy,” said Zahra Marani, partner of Marani Law LLP, which specializes in real estate and private loans. “It shows that the generation of parents definitely believe in property as an asset and want to see their children thrive,” she said.
Laura Martin, COO of mortgage brokerage firm Matrix Mortgage Global, estimates that 60% of her millennials receive help from their parents, either with the down payment or as co-signers of a mortgage, which puts parents on the hook. for monthly payments if their child is unable to make them.
“They want their adult children to enter the market before it’s too late,” she said. “Parental support for living heirlooms is the number one factor driving up prices in Canada’s largest urban markets.
With the typical price of a home in Canada over $ 700,000, it’s hard to save enough for a down payment. It’s not just Vancouver, the country’s most expensive real estate market, where house prices are up $ 1 million. Typical home prices in the Toronto area have climbed into the $ 1 million territory this year. Homes in Chilliwack and Victoria, British Columbia, as well as Guelph, Kitchener-Waterloo and Hamilton, Ontario are also quickly approaching $ 1 million.
Since the start of the pandemic, the average selling price of a home has increased by more than 30%. Values are rising at a faster rate in suburbs and small towns, with homebuyers looking for larger properties for home offices, living and recreation.
At the end of March, it took 63 months to save for the minimum down payment on a home in Canada, compared to 55 months in the first quarter of 2020, according to the National Bank’s Housing Affordability Monitor of Canada. Canada. The bank examines the months it takes to save for a down payment if the savings rate is 10 percent of median household income.
In the Toronto area, the number of months required to save for a down payment tripled to 277 months. Of the 10 major cities examined in the quarterly report, only Calgary has remained the same. All the other cities have seen their prices deteriorate. The number of months required to save for a down payment in Hamilton is 63; Vancouver is 317 years old; Montreal 37; and Ottawa 39.
“For a lot of kids, how are you going to get the money they need,” said Steven Ranson, managing director of HomeEquity Bank, which specializes in reverse mortgages. “People can’t believe how much they made on their homes. In a sense, they have more money than they thought and recognize the challenges. “Why would I wait until I die to help them.” Why not help them now, ”he said.
The country’s major lenders have witnessed the increase in the size of down payment grants.
“We are seeing families offering a higher amount to the next generation to help them buy a home,” said Nicole Wells, vice president of secured real estate loans at CIBC. CIBC has been tracking amounts donated by its clients and says it has gone from an average of $ 98,700 in 2019 to $ 124,600 last year. In the three months ending in January, the average amount was $ 156,000.
At BMO Private Wealth, its president for the Toronto area said down payment assistance ranged from $ 10,000 to $ 30,000. Today, donations are typically around $ 45,000 and in some cases $ 100,000 to $ 200,000.
“They need a bigger down payment,” said Sandra Henderson. “The pandemic has accelerated the size of the gift and the timing of the donation,” she said.
At the Royal Bank of Canada, wealthy families are increasingly educating themselves on how to make down payments or loans for down payments and ensure that this will come from the child’s future inheritance if the loan does not come. is not reimbursed.
Tony Maiorino, head of wealth management at RBC, said parents were saying, “I want to help them do this. But I want to make sure that if anything happens to me, it comes out of their net inheritance. “
All three banks said their clients primarily use funds from their investment portfolios.
Al Marani, 37, is one of those who had to turn to his parents for help. In 2015, he purchased a $ 434,000 pre-construction condo in downtown Toronto. He made a down payment of $ 86,800. His bank provided him with a pre-approved mortgage for the remainder of the purchase price, which was due in 2019, when the condo was due to be built. However, construction delays pushed completion until this year, putting Mr. Marani in a difficult position.
The restaurant he runs, a Cora Breakfast and Lunch franchise in Pickering, Ont., Suffered a 40 to 50 percent drop in revenue when pandemic restrictions shut down dining inside. Even though his business had been profitable before the pandemic, his bank told him his pre-approved mortgage was no longer valid because there was no security in the restaurant industry.
“In my naivety, I didn’t think it would be a problem to get a mortgage,” he said.
Mr Marani considered alternative lenders, but the interest rate was over 7%, nearly triple the rate offered by the big banks. He finally asked his parents if they would consider giving him a loan so that he could close the condo. They agreed and took out a reverse mortgage. “Mom and Dad were ready to help as much as they could. In doing so, they put their home in danger, ”he said.
HomeEquity Bank’s Mr Ranson said parents taking out reverse mortgages for down payment giveaways mostly happened in the expensive city of Vancouver. But now it’s common across the country.
For Mr Cosburn and his wife, they wanted to make sure their daughter and grandchildren did not experience the homelessness his wife suffered when she was growing up. His wife’s parents lost their home when she was a teenager. “This kind of experience is with you,” he said.
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