Banks may be taking a page out of broker handbooks

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If this advice sounds familiar, it’s probably because it is the same kind many brokers have prided themselves on providing.

Potential buyers in Vancouver and Toronto feel pressure to buy now rather than later, according to a recent big bank study; and that bank is advising clients to put a purchase off until they are financial able to handle the costs.

"We recommend that first-time homebuyers save for the largest down payment they can afford, even if that means waiting a bit longer to buy," Marc Kulak, associate vice president, Real Estate Secured Lending at TD Canada Trust, said. "The larger the down payment, the less you will need to borrow, which ultimately saves you money in interest payments long term. With a down payment of at least 20 per cent, buyers can also save on mortgage insurance premiums upfront."

It’s prudent advice – especially coming from a big bank, which are often vilified for pushing products and retaining clients at all costs.

According to a report by TD, one if five Vancouver- and Toronto-based homeowners said “Fear of Missing Out” was a top consideration before purchasing a home.

The reason for the “FOMO” is the ever-increasing home prices in those markets, according to TD.

"The busy spring home buying season can create competitive bidding wars, and research suggests that prospective buyers are already worried about rushing the process," Kulak said. "There's more to consider beyond purchase price, interest rate and the monthly mortgage payment. It's essential that buyers leave enough time to do their homework - especially considering, 40 per cent of prospective first-time buyers are worried they don't understand the full cost of ownership."

Still, it’s a very real concern for buyers; especially considering just how much homes have appreciated.

In Vancouver, the average home price increased 22.6% year-over-year in March to $1,093,267.
In Toronto, meanwhile, the average home now costs %688,181 – an increase of 12.1% year-over-year.
  • LanceH on 2016-04-19 9:16:14 AM

    Hmmm, save 200k down? I think most of us advise clients per their circumstance. If clients aren't ready, for any number of reasons, they should be dissuaded from proceeding! At the opposite end, I've helped ppl buy with $0 down. 5yrs later, the "savers" are still saving as prices rise faster than they can save, while the $0 down purchasers are sitting pretty with 100k in equity and moving to a best-rate mortgage.

  • Jerry Quigley on 2016-04-19 9:17:28 AM

    So, a first time buyer waits 1 year, maybe 2 years, and saves an additional $40,000, a lot of dough, right!
    Meanwhile the price of the average home, the one they have their eye on, increases 22.6%, so on a modest priced home of $600,000, that's $135,600. Apply the extra $40,000, which is a lot of dough, and their mortgage is $94,400 more than if they bought last year.
    Great advice, TD Bank and any broker telling people to wait and save up a bigger down payment!

  • Lou on 2016-04-19 9:38:32 AM

    Unbelievably stupid advice for folks buying in areas where the average price is increasing by 12 to 22%. If the average price is 50 $500,000 and prices go up 10% you have to earn $75-$80,000 before taxes just to break even and keep up with that $50,000 increase. Makes absolutely no sense

  • Mortgage Guy Geoff on 2016-04-19 9:51:15 AM

    Wise as this may sound on the surface the basic math doesn't add up. The price of a home you want to buy today will be 10-12% higher a year from now. Its unlikely that a first time buyer can earn enough return on their existing savings plus save enough new funds to adequately compensate for the market pricing. Therefore the advice really should be if you simply can't afford it NOW then of course don't. But if you can get in as soon as you can. And if home ownership is indeed that important to you then find a way to make it work. ie. sacrifice/hard work. Maybe a few less Starbucks Lattes each month or a slightly smaller TV.

    Advice suggesting otherwise is just not well thought out. As the "professional" in the equation maybe we should think these things through.

  • Amber on 2016-04-19 10:22:54 AM

    This is great advice if you are living at home but if you are paying rent that is someone elses mortgage. Putting money into the equity of your own home, even at interest expenses, makes more sense then paying someone elses mortgage.

  • Tim on 2016-04-19 11:04:29 AM

    Unfortunately, it's a well-founded fear: housing prices have been rising faster than most FTHB's ability to save ...

  • Omer Quenneville on 2016-04-23 5:56:13 PM

    The best time is as soon as you qualify and can afford the commitment both financially and personally. Waiting to save more money is like waiting for water to run up hill.

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