Photo: James Bombales
As a new mortgage stress test for uninsured borrowers continues to cool Canada’s housing market this month, many industry watchers are predicting that one bank will be hit particularly hard — the Bank of Mom and Dad.
While the Canada Mortgage and Housing Corporation has estimated that roughly 18 per cent of first-time home buyers receive financial support from family for down payments, that number was widely expected to decrease in 2018 as a result of the new mortgage rules.
“I think that there’s definitely one type of loan from the Bank of Mom and Dad that’s going to decrease [in 2018], and that’s buyers who were getting assistance so that they can pass the 20 per cent down payment threshold, so they won’t have to have mortgage insurance or take the stress test,” Zoocasa CEO Lauren Haw told BuzzBuzzNews earlier this year.
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But according to a new report from Sotheby’s International Realty, many of Canada’s Baby Boomers are still planning on helping their kids out with their first home purchase.
“Baby boomers affect the Canadian real estate market on multiple levels: as direct consumers who drive housing demand and product mix, as arbiters of market confidence, and as indirect influencers through their financial support of the next generation home buyers,” writes Sotheby’s president and CEO Brad Henderson. “Anecdotally, we have known that funds from the ‘Bank of Mom & Dad’ have been flowing into the market — this new report sheds light onto some of the critical details.”
Roughly one third of baby boomers surveyed by Sotheby’s plan to, or have already given, a financial gift to their children to help them get into the real estate market.
“Of living inheritance givers, 12 per cent have already transferred funds to beneficiaries,” reads the report. “22 per cent plan to do so in the future, with almost half of this segment planning to do so within the next five years.”
The report also found that the median size of the financial gift in question was between $25,000 and $49,999.
That money largely goes towards first-time home purchases, with 82 per cent of respondents indicating this was the intention of their gift.
“Overall, 30 per cent of baby boomers indicate that beneficiaries buy properties under $350,000, with 28 per cent of purchases between $350,000 to under $500,000, and 15 per cent between $500,000 to under $750,000,” reads the report.
Location plays a role, too. “Calgary boomers are the most likely to have already transferred, or to have plan to transfer funds… 41 per cent indicated a gift or pending gift,” reads the report. “36 per cent of Vancouver boomers, 35 per cent of those in Toronto and 27 per cent of those in Montreal have given or intend to give a living inheritance for family members’ residential real estate purchases.”
Yet despite the report’s findings, many in the industry believe that the idea of the Bank of Mom and Dad is blown out of proportion.
“One thing that’s important to emphasize in this conversation is that the people who access the Bank of Mom and Dad are a minority, it’s not as widespread as we might imagine,” Mortgage Professionals Canada chief economist Will Dunning told BuzzBuzzNews last fall.