1st time home-buying blues

Each year, Mortgage Professionals Canada conducts research that focuses on:

• trends in the housing and mortgage markets
• consumer attitudes
• interpretations of government policies related to mortgages and housing in Canada.

Here’s a recap of the findings as they relate to first-time home buyers and why many potential buyers will have to delay buying, and often by very long periods.

For people who do not own homes, the survey asked what the main reason was for not owning.

• The main reason related to lack of financial preparedness especially needing time to save for a down payment.

There is still a very high level of interest in home buying by young people. Among non-owners aged 25-34, three-quarters expect to buy a home within the next five years. But whether they will be able to buy may be an entirely different matter.

Here are some reasons why they may not be able to buy.

• Their personal circumstances (employment situations, incomes, confidence about economic prospects, and access to down payments.)
• Market conditions – will they be able to find options that meet their reasonable needs and wishes at costs that they can afford.
• And even if their personal circumstances and market conditions are favourable, can they obtain mortgage financing. At this time, federal government policies (stress test) are making it difficult for potential buyers to obtain mortgage financing.

For potential buyers, who are adversely affected by the mortgage stress tests, what are the solutions?

• Reducing their expectations – therefore, buying a less expensive property.
• Making larger down payments.

Analysis indicates that 18 per cent of prospective homebuyers who could currently afford their preferred purchase would fail a stress test for mortgage financing.

As a result many would need to make considerably larger down payments which may result in prolonged delays in buying a home.

Here is some information regarding down-payments funds.

• The single largest source of fund for down payments (just over one-half of total funds) is personal savings and RRSP funds.
• The “bank of mom and dad” is growing in importance, but still accounts for less than one-fifth of total down payments.
• Loans from financial institutions are a large source of funds but revised mortgage lending regulations are now making it more difficult for buyers to borrow down payments.

This set of circumstances means that many potential first-time home buyers will have to delay buying, and often by very long periods.

As a result the homeownership rate has fallen in Canada, in large part due to the increasing difficulty of saving for down payments. The additional challenges posed by the stress tests will add to the downward pressure on the ownership rate.

The mortgage stress tests, by suppressing home ownership, are adding to the financial stresses that are and will be experienced by Canada’s younger generations.

*Information provided by the Report on the Housing and Mortgage Market in Canada – Mortgage Professionals Canada – July 2018

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.