When buying your first home, tucking away enough money for a downpayment is by far the largest expense, one that can equal a five- or six-figure sum. While the spring market remains red-hot across the country, many first-time buyers are worried that their downpayment savings are inadequate in the current environment and will hold them back from making their home purchase.
In collaboration with private residential mortgage insurer, Sagen, Royal LePage Canada released new insights this month which show that the majority of Toronto homebuyers are concerned that their downpayment is not large enough. Researchers for the study interviewed 909 first-time buyers across the country who have purchased a home within the last two years.
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Buyers in Toronto had the highest levels of anxiety about their downpayment in Canada — 75 percent of first-time buyers responded that they felt worried they would miss out on purchasing a home due to an inadequate downpayment.
This is a jump from 2019, when only 68 percent of Toronto respondents felt this way. Provincially, 70 percent of those surveyed from Ontario shared concerns that their downpayment wouldn’t be enough, a significant hike from 60 percent of respondents in 2019.
Low borrowing costs and a softening in the Toronto condo market did provide a rare opportunity for city buyers this past year, the report highlighted. However, sparse inventory and high prices are proving to be a challenge.
“Low interest rates mean the carrying cost of a mortgage is manageable for many young Canadians, but with inventory so low and rapid home price increases, there is a lot of competition in the market,” said Royal LePage Signature Realty sales representative Tom Storey in the report, “This is adding an extra layer of anxiety to an already stressful process.”
At the national level, 62 percent of respondents who bought within the last two years said that before buying their property, they feared that they might miss out on a home that they wanted because of an insufficient downpayment. This marks a five-point increase from the same question raised in 2019, the report says.
“It’s not at all surprising that first-time homebuyers are experiencing anxiety about the size of their down payment,” said Phil Soper, President and CEO of Royal LePage in the report. “Buying a home, especially your first home, is one of the biggest and most important financial investments a person will ever make.”
It’s not uncommon for a buyer’s family to help out with a downpayment, or for adult children to continue living with their parents in order to save for one. Across Canada, 25 percent of those surveyed said that they lived with parents or relatives before buying their first home. In Ontario, this percentage was above the national average at 31 percent, and 34 percent in Toronto.
Of those living at home in Canada, 50 percent of respondents paid rent to their families, and for those who paid, 34 percent said that they paid under market value. However, 15 percent of those who lived at home said that it delayed their parents’ decision to downsize.
“The hurdle causing anxiety for first-time homebuyers is saving for a down payment in an environment of rising home prices in many parts of the country,” said Stuart Levings, President and CEO of Sagen, in the report. “While some have parents who can step in, many do not and they are struggling to get into the market.”
Similar to Toronto, 69 percent of those surveyed in Vancouver shared the same feelings of concern about their downpayment, a significant jump from 58 percent of respondents who said they felt worried about it in 2019. Yet, this is slightly below the provincial average, with 71 percent of those in British Columbia expressing concern about their downpayment.