Brokers are fearing further mortgage rule changes, especially any that would disrupt the flow of “cheap" but increasingly necessary money into the market.
“It is a very simple equation: consumers in the market, especially first-time buyers, get concerned about missing the boat on low rates and get the down payment gifted from parents who are sitting on hundreds of thousands in home equity, which in turn keeps purchases going,” Lior Hershkovitz of Mortgage Edge said on MortgageBrokerNews.ca. “The abundant supply of cheap money in the system empowers sellers and they feel more confident securing top dollar for their property.”
Down payment gifts have been a source of debate among brokers, with some believing they bloat an already overpriced housing market. And, to be sure, having the help of a parent provides ammo in a bidding war, which may lead to inflated prices, but Hershkovitz admits it isn’t the only factor.
“At the end of the day it is still easy money and the gifts play a part, but you still have lenders who do a 35-year amortization as long as it is a conventional mortgage,” Hershkovitz told MortgageBrokerNews.ca. “So, that too, plays a factor in all this; the low rate, extending the amortization and parents today willing to give more and more money (are all) contributing.”
Hershkovitz expects the market to remain steady as long as the status quo continues, which will happen unless the government intervenes.
“(The trend will continue) unless the government comes with regulations and says you can only gift so much or if they become more stringent with the documentation regarding the gifts … right now that’s not happening,” Hershkovitz said. “It could also potentially create some resistance to giving gifts if parents have to show their own financial history when giving a gift for a mortgage.”
However, such restrictions could have a detrimental effect because they would price a great deal of potential buyers out of the market, according to Hershkovitz.
“I think it’s very commendable that parents are stepping up to the plate and helping their children get into homes,” he said. “But, obviously, once you make that more difficult or you put the onus on the parents to put give more information it could be detrimental to the market.”