Gifted downpayments are surging – but what other options are available?
Skyrocketing home prices and steep mortgage qualification hurdles have seen a growing number of first-time homebuyers rely on gifted payments from parents or other relatives to fund a purchase – and that’s a trend that shows little sign of slowing, according to a new report.
Canadian Imperial Bank of Commerce (CIBC) said in a study published this week that while the share of new buyers using wealth transfer from family members had remained largely flat since 2021, the amount being gifted for downpayments appears to be rising sharply.
The average amount transferred by relatives to first-time buyers now sits at an eye-watering $115,000, according to bank economists Benjamin Tal and Katherine Judge, spiking by 73% compared with 2019 levels.
That figure has increased recently even despite a slide in home prices since 2022, with the overall share of first-time buyers relying on financial assistance from family members now sitting at 31%.
For mortgage brokers, the struggles faced by first-time buyers come as no surprise, with little hope for many prospective buyers unable to turn to family assistance to fund a downpayment.
Sung Lee (pictured top) of Swivel Mortgage in the Greater Toronto Area (GTA), told Canadian Mortgage Professional that a limited range of options were on the table for first-time entrants to the market.
Wealth transfer is an increasingly common solution for those buyers who can avail of it, according to Lee. “With first-time homebuyers, unless they have a significant downpayment or if they’re gifted from a parent, they are continuing to see challenges in entering the market,” he said.
“There are some solutions that we’re introducing: things like co-buying through certain unique firms that are available in the marketplace where they’ll contribute a portion of the downpayment. We’re seeing some more interest in those types of unique solutions that historically people haven’t really talked about.”
First-time buyers’ affordability woes continue to build
Mounting unaffordability for first-time buyers has been a longstanding trend across Canada’s housing market. A recent Ratehub.ca study showed the vast majority of major markets in Canada remain unaffordable from a housing standpoint.
Prospects of purchasing a home declined in 11 of 13 cities studied by the aggregator in May as a recent jump in home values bit into affordability even despite flatlining mortgage rates.
In Vancouver and Toronto, the income required to afford an average home sat at a jaw-dropping $232,150 and $217,170 respectively in May, with six-figure income also required in Halifax, Montreal, Calgary, Ottawa, Victoria, and Hamilton.
Predictably, Ontario and British Columbia figure as the two provinces with the highest reliance on gifts for first-time purchases, according to CIBC. Thirty-six percent (36%) of first-time buyers receive gifts in those provinces, the bank’s report said, 5% higher than the national average.
While the phenomenon is helping carve out opportunities for some first-time buyers, “it is also contributing to a widening of the already wide wealth gap in Canada,” Tal and Judge noted.
First Home Savings Account sees some uptake – but critics remain
Last year, the federal government unveiled its First Home Savings Account (FHSA), a registered plan aimed at helping first-time homebuyers to put money towards buying or building a qualifying first home on a tax-free basis.
New buyers can contribute up to a lifetime limit of $40,000 into their FHSA – but while that program saw enthusiastic early uptake, it hasn’t been without its critics.
Cindy Marques, a certified financial planner and director at Open Access Ltd., told Bloomberg that she had noticed a “lack of literacy in general” about those account types, with many Canadians assuming they don’t qualify if they’ve already owned a home.
“You can be a homeowner today and then in four years’ time satisfy the criteria of first-time homebuyer, because you sell your house and you simply don’t own one and your common-law partner doesn’t own one,” she said. “Now you’re considered a first-time homebuyer again.”
On the broker side, Lee said the FHSA has not featured prominently as an option for first-time buyers in Toronto. “It hasn’t really come about too much,” he told CMP. “We’ll bring it up from time to time – but there hasn’t been much discussion about it, to be honest.”
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