Nearly a Quarter of Millennials Expect $100K from Family to Be Able to Purchase a Home
While pent-up demand and low borrowing costs are imploring first-time homebuyers to step into the Canadian housing market, many of these fresh faces aren’t taking the plunge without financial support.
According to a new survey from BMO Bank of Montreal conducted by Pollara Strategic Insights, 56% of participants said they would seek help from family as they geared up to purchase their first home.
Prospective buyers in Ontario were second-most likely to look for financial assistance, as 58% of respondents declared they would do so. British Columbia’s home-hunters took the top spot; there, 59% said they’d seek aid. What’s more, Millennials (an arguably debatable age range, but defined by Pew Research Center as those born between 1981 and 1996) were more likely to search for financial assistance than those defined as Gen X (individuals born between ’65 and ’80).
While who is seeking support in making the big (literally and figurative) move is interesting, what might be even more intriguing is just how much these could-be-buyers are looking to obtain from external sources.
Among those looking for financial aid, nearly 25% are seeking between $10,000 and $50,000; on average, first-time buyers are questing after $44,500 in assistance. But Millennials aren’t stopping there. According to the survey, 23%, or nearly a quarter of buyers in this age range, are expecting $100,000 or more in financial support as they prepare to purchase a home.
“In our conversations, we typically advise prospective buyers not to spend more than 30% of their monthly income on housing,” said Hassan Pirnia, Head, Personal Lending and Home Financing Products at BMO Bank of Montreal.
Pirnia says that on the bank’s side of the equation, opportunities — such as cash back offers for first-time buyers, and education on what individuals are able to afford — are available to support those looking to buy a home. Online calculators, for example, help homebuyers gauge their budget to see how much they could save with shorter amortizations and accelerated payments.
“We continue to watch the impact that COVID has had on homebuyers,” Pirnia says, “but would encourage buyers to be patient and ensure they can sustain the monthly costs.”
With the pandemic providing a unique backdrop for those looking to make their first property purchase during These Strange Times™ , the survey says first-time buyers reported COVID-19 is indeed influencing which type of mortgage they’ll choose. As many households face increased uncertainty, reliability can be found in the right mortgage selection. Perhaps unsurprisingly, then, of those surveyed, 57% indicated that they would opt for a fixed-rate option.
“We have noticed the same [aforementioned] trends amongst our first-time homebuyers — lots of family financial support, and opinions, involved in the buying process,” says Jerome Trail, owner and broker of record at The Mortgage Trail. “Most often, the parents are urging their kids (or grandkids in some instances) to only take a fixed rate mortgage solution.”
Trail says that typically, especially when it comes to first-time buyers, he’ll recommend a fixed mortgage product — which features a guaranteed monthly payment that can be counted on and managed — so clients can budget their payment properly. He says variable rate products are only recommended in “unique circumstances.”
Indeed, the poll shows that of those unsure about which mortgage-type to choose, more than 30% indicated that the pandemic has influenced them, making them “more likely to gravitate” in the fixed-rate direction. Meanwhile, a mere 8% are more likely to go with a variable rate mortgage as a result of COVID-19.
“For first-time buyers that are in a comfortable financial position, we are in a favourable interest rate environment,” Pirnia said. “When looking at the type of mortgage, it’s important to understand how the choice will affect day-to-day finances and long-term financial plans.”
Of those who are considering variable rate mortgage options, 55% are looking long-term, with the belief they’ll end up paying less over the duration of the mortgage. In Ontario, 60% of buyers share this belief.
“In today’s incredibly low rate environment, the rate savings on a variable solution is marginally different as compared to the fixed rate solution,” says Trail. “The monthly payments are almost the same.”
Through various means, the Bank of Canada is subsidizing the financial sector, and allowing lenders to provide borrowers with mortgage financing at historically low rates. Trail notes, though, that the current period of “incredibly low interest rates” is not expected to go on forever.
The most prudent advice, he says, is for borrowers to look at longer-term mortgage offers, such as those in the seven- or 10-year fixed rate options, to lock themselves in for a prolonged period.
And, of course, to continue to be nice to their family…