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With real estate prices continuing to rise in Canada, having a financial leg up from the Bank of Mom and Dad is a significant advantage in today’s market. For the country’s wealthiest families, parents have been known to give their adult children amounts well into the six-figure range for the purchase of a home, according to new data insights.
In a report published this week, IG Wealth Management revealed that high-net-worth individuals gave an average of $145,000 to each child for the purchase of a property.
The report — Family Matters: a report on affluent Canadians and the transfer of wealth — used research from Investor Economics and Pollara Strategic Insights, which gathered online survey information from 510 Canadians who have investable assets of $1 million or more.
“Increasingly, Canadian families are viewing wealth created by older generations as family assets, and as means to help their children and grandchildren enjoy a more secure financial future,” said Damon Murchison, president and CEO of IG Wealth Management, in a news release accompanying the report.
“However, many parents are also concerned about how and when to leave money to the next generation.”
When evaluating the major areas of inter-family gifts, buying a first home ranked second on the list at 72 per cent, one place below education (86 per cent) and above car (52 per cent) and living expenses (51 per cent).
About three out of four HNW individuals surveyed said that they either had acted or were likely to act as the Bank of Mom and Dad. When it came to home buying, few of those surveyed said that they would provide the full amount. However, on average, the funding given by affluent parents was equal to 25 per cent or less of a home’s total purchase price.
The amounts of property-related gifts grew with the level of a family’s wealth or income as well as the location of the family, the report noted. Future parental support for first-time home purchases — which equaled 26 per cent overall — was highest in the provinces where property values are the most expensive, 33 per cent in British Columbia and 30 per cent in Ontario.
“We gave our youngest son $100,000 to buy a house in Vancouver because it’s too damn expensive,” said one anonymous Vancouver interviewee in the report.
After the first home purchase, the desire for parents to provide financial assistance ranked below other types of support. Parental enthusiasm to fund their child’s next home transaction or a vacation property equaled 24 per cent and 10 per cent.
By gender, males were slightly more willing to help with buying a home, with 72 per cent expressing desire to financially assist with first-time property purchases, 28 per cent with the next home and 12 per cent with a vacation property. This is slightly higher than females, 71 per cent, 22 per cent and four per cent of whom had the willingness to help with the same types of property transactions.
Using the averages generated through the online survey and the Investor Economics segmentation data, the IG report estimated that the amount that has been given and will likely be given to adult children by affluent families will equal $100 billion in the years ahead.
In a similar report published last month, CIBC found that financial gifting for home purchases amounted to just over $10 billion over the past year, 10 per cent of the total down payments in the market.
Although the share of new buyers receiving financial help did not grow during the pandemic, the In Focus report stated that just under 30 per cent of first-time home buyers had help from family this past year. On average, first-time buyers received $82,000, while mover-uppers were given $128,000.