Purchasing a home in Canada is more challenging (and more complicated) today than it has ever been. For first-timers, such considerations as the stress test and changes to mortgage rules are as intimidating as spiralling price appreciation and increasing interest rates. The 30-year-old young professional earning $60,000 a year is simply running out of options to become a homeowner.
First-time buyers are often in the position of having to come up with creative means of achieving financing. Asking for help is the new norm; however, firsttime buyers simply aren’t doing this in an effective way.
Being in my mid-20s, I can certainly relate to the struggles of this demographic. Growing up just outside of Toronto, moving into the downtown core was always my goal, but when the time came to make the move, I knew I couldn’t do it on my own. What’s an eager millennial to do?
Getting a parental co-signer – a commonly proffered workaround – is nowhere near as easy as it sounds. Parents may well have their own debt obligations; many have large unsecured debts and, of course, their own ongoing mortgage payments.
A financial gift toward a down payment is a great answer for those with the means, but more often than not, parents’ financial resources are tied up in the equity of their homes. Refinancing could be an option, but the new rule changes make qualifying a less certain prospect. No wonder so many millennials eyeing homeownership feel that there’s no light at the end of the tunnel.
This is where mortgage brokers come in. Our remit is already more diverse than it once was – we now need to be mortgage coaches (and some days even mortgage therapists) for our clients. As part of this process of better addressing client needs, we must become more adept at positioning co-signers, financial gifts and tenancy in common.
The last concept – tenancy in common, or the purchasing of a home with a friend, partner or relative – will become the new norm in the major urban markets of Toronto and Vancouver. I know whereof I speak: I did it, and I believe more home purchases will soon follow my example.
Apart from the obvious advantage of halving the amount I had to come up with for a deposit, the benefits of going into such a major purchase with a partner diminished every fear I once had about entering the housing market. For example, the muchdespised Toronto land-transfer tax and those pesky lawyer fees? Also cut in half. In fact, all housing-related expenses, including condo fees, mortgage payments, property taxes and insurance, came with a 50% reduction in price.
The benefits of halving line items such as internet, cable, Netflix and hydro – and even joint expenses as small as dish soap – begin to compound. It’s also comforting to know that while my home is sitting vacant for the majority of the day, whatever price tag could be attributed to that notional vacancy is reduced by 50%.
However, a smooth tenancy in common demands that co-owners take precautions early on: Buyers should seek out legal advice in order to protect the asset and the relationship that exists between the individuals. A contract between the two parties that stipulates a potential timeframe to hold the asset is also recommended. A ‘shotgun clause’ within this contract sets parameters if one party should need or want to sell off their share of the property.
Given that the average condo price is on track to reach $600,000 in Toronto and $700,000 in Vancouver, and thus move beyond the reach of anyone earning lessthan $100,000 a year, a flexible approach such as pooling down-payment and income resources in a tenancy in common arrangement is now required.
The shift in ideology for this to become more commonplace is underway, and the sooner young people realize this, the sooner they will find themselves able to buy property and – perhaps even better – lower their total expenditures. Young people can either partner up to buy property – or get comfortable at their parents’ house.
Matthew O’Neil is a mortgage agent with Mortgage Intelligence. After spending four years in a mortgage specialist role with RBC, he started Connolly Capital, a mortgage administration company.