Becoming a first-time homebuyer is a tough task for many young adults in Canada.
Higher prices and tighter mortgage regulations have made the dream of owning a home more challenging. With the national average home price set at $699,117 in May 2024, even the fact that it is 4% lower than last year is not a comfort, given the rising inflation and lack of affordable housing.
It seems to be a never-ending battle to save money for a downpayment, especially if one has one’s heart set on a stylish condo in Toronto or a townhouse in Mississauga.
However, a recent trend has emerged—getting financial help from parents. Of course, this is not strictly a new thing—parents and family have traditionally helped a young family buy their own home. But increasingly, parental wealth has become a determining factor in who can successfully buy a house.
According to industry data, a growing proportion of first-time homebuyers and “mover uppers” in Canada are relying on financial assistance from their parents to secure a property. This can have a deep impact on the homebuyers, their families, and the country’s socioeconomics.
What factors drive this phenomenon, and what can be the potential long-term consequences for the Canadian housing market? This article will help you understand the nuances of this “banking on parental help” situation.
Parental Wealth as a Homeownership Prerequisite
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As everyone knows by now, the country’s housing market has seen rapid changes over the past decade, with home prices zooming skyward in many major areas.
This rapid increase has obviously made life difficult for first-time buyers to save for a down payment and secure a mortgage. As a result, a growing number of young Canadians are asking their parents for financial handouts.
According to a recent report by the Canadian Bank of Commerce (CIBC), the percentage of first-time homebuyers who needed a gift from their parents rose sharply, from 20% in 2015 to 31% in 2024.
And that’s not all! The average value of these gifts has also increased in tandem, reaching an eye-popping $115,000 in 2024 – a 73% jump since 2019.
If you think that only the very young and first-time buyers face this issue, you would be wrong; even those upgrading their homes are increasingly counting on parental wealth.
CIBC’s data shows that the share of homebuyers upgrading their properties with the help of a parental gift climbed to 12% in 2024, up from 9% in 2015. The average gift for these “mover uppers” reached $167,000, a 97% increase since 2019.
Therefore, it is unsurprising that British Columbia and Ontario have seen a greater dependence on family financial support. In these pricey markets, the share of first-time buyers using a gift for homebuying is around 36% – five percentage points higher than the national average. The average gift size is also significantly larger, reaching $204,000 in British Columbia and $128,000 in Ontario.
The Widening Wealth Gap
The growing dependence on financial handouts for homeownership has an unhealthy impact on the housing market and the social fabric.
An industry expert explained, “Homebuyers relying on a wealth transfer from their parents to purchase a home is becoming the norm in Canada. This phenomenon is helping to mitigate the bite of housing inflation for buyers, but unfortunately, it is also contributing to a widening of the already wide wealth gap in Canada.”
In simpler terms, the ability to buy a home is increasingly becoming a privilege. This privilege is more or less limited to those with access to family wealth, leaving out a sizeable portion of the population. This trend not only widens the wealth divide but also threatens the social mobility that has long been a cornerstone of the Canadian identity.
In addition, if there is an economic downturn or a drop in housing prices, the money parents gave to help buy homes might be lost. This could worsen the situation for homeowners and impact the economy even more.
Parental Gifts: What Do You Need to Keep in Mind?
Buying a home can be financially smoother for those fortunate enough to have access to family wealth. But, this gift needs to be handled carefully to avoid potential pitfalls.
Parents who wish to help their children buy a home should be clear about the terms of the financial support. A legally enforceable agreement and a repayment plan are essential if the funds are not an outright gift but rather a loan.
If parents co-sign on a mortgage, they must be aware of the potential risks to their own credit rating and financial security should their children default on the loan.
Before committing to any form of assistance, parents must draw up a comprehensive financial plan that considers their long-term care needs and life expectancy.
This proactive approach can help ensure that gifting or lending money to their children does not jeopardize the financial well-being of the older generation.
Alternative Homeownership Pathways
Does this mean that without getting a gift from their elders, young Canadians cannot own a house?
Well, we would not say it is impossible, but many young adults find themselves trapped in perpetual renting. It isn’t easy to save enough for a down payment or qualify for a mortgage, especially if they live in a metro or the bigger cities.
Potential homebuyers can consider some alternative pathways to homeownership. Government programs and incentives, such as the Home Buyers’ Plan and the First Home Savings Account, can help save for a down payment and access more affordable mortgage options.
Additionally, innovative housing solutions, such as cooperative housing or shared equity models, can be viable options.
Redefining the Canadian Dream
Though parental wealth has become a prerequisite for many Canadian homebuyers, it is not the only path to fulfilling their dreams.
It is a longer and more challenging route, but with the correct advice from professionals, you can become a homeowner, too. Contact us if you wish to know more.
