Faced with rapidly rising house prices, more first-time homebuyers are getting help from mom and dad to get into the market.
The most recent statistics come from BC Notaries’ 2016 Year-End Real Estate Report.
A December survey of BC Notaries across the province found more first-time buyers are receiving financial support from parents in amassing down payments on their first home purchase than in previous years, and those down payment percentages were often higher since new federal lending regulations were introduced in October.
“I would say about 70 per cent of my clients who are first-time home-buyers receive help from their families,” says Oak Bay Avenue notary Morrie Baillie.
While about seven to 10 per cent of Baillie’s clients are first-time buyers, in more cases, “I see the parents of Oak Bay helping their children.”
Sometimes that help comes in a lump sum, sometimes in the form of help qualifying for a mortgage. Other times parents will downsize to a smaller home and sell the existing home to family at a reduced price.
Of particular note from a life-planning perspective, many parents are providing their first-time buyer children with some level of financial support as an outright gift, without going on title themselves.
Province-wide, 78 per cent of notaries said their first-time buyer clients received funds from parents as a gift with no ownership in exchange for the funds provided.
In many cases, the financial gifts represent a significant percentage of the total down payment with 85 per cent of notaries citing their clients get help with anywhere up to 50 per cent of their down-payment.
Whichever path families choose, it’s essential they understand the pros and cons of each option, including looking at potential ramifications down the road, Baillie says.
Beyond the family help, homebuyers must also be mindful of where the balance of their downpayment is coming from and how they’re going to get it, Baillie says, noting removing funds from an RRSP, for example, requires some lead time.
“Regardless of the market or regulatory conditions, the most important consideration is that young buyers understand all of the short and long-term costs that may apply to buying and owning a home,” said Tammy Morin Nakashima, president of the Society of Notaries Public of BC.
Notaries provide conveyancing or other legal services on more than half of all residential real estate transactions in B.C.
In addition to the downpayment, costs buyers need to be mindful of include the property transfer tax, legal fees through either a notary or lawyer, insurance and closing costs, including the adjustment of property taxes and utility payments between buyer and seller. Those buying a strata unit such as a condo or townhouse must also factor the strata fees into their debt load and have documents such as strata minutes and budget available for review.
The BC Notaries’ 150-participant survey also found first-time buyer activity remained strong generally over 2016.
BC-wide, 55 per cent of notaries noted that first-time buyer activity stayed the same in 2016, while 29 per cent noted an increase, and 16 per cent cited a decrease.
Even in markets that experienced rapid house price increases, notaries cited similar or increased activity in 2016 versus previous years. In 2015, 57 per cent of notaries reported that first-time buyer clients were typically getting help; that increased to 72 per cent.