Ask any hopeful buyer on the margins of Canada’s housing market – particularly in its most expensive cities – and chances are they’ll tell you scraping together the funds required to afford a downpayment is the biggest hurdle they face.
Even falling property values over the past two years have failed to change that picture substantially, with buyers who want to avoid having to pay mortgage insurance still facing a huge downpayment requirement (including for average homes).
That means a troubling division that’s emerged in the market shows little sign of fading: the gap between buyers trying to afford a downpayment on their own, and those able to turn to the so-called “Bank of Mom and Dad,” financial assistance from parents or other family members to fund their purchase.
Eyewatering prices still a factor despite recent drops
Markets like Toronto and Vancouver, where housing is far more expensive than other cities in Canada, are still likeliest to see parents chip in to support a property purchase by their children, according to Statistics Canada.
And while those markets have cooled over the past 18 months, with bidding wars and rampant price appreciation no longer common, first-time buyers are still struggling to get their foot on the ladder alone.
“You see the Bank of Mom and Dad still going on because of the downpayment – now, though prices have softened up, it’s still a lot to save up,” Toronto-based mortgage agent Christelle Mwamba (pictured top) of Mortgage Scout told Canadian Mortgage Professional.
For a $1 million home, a minimum downpayment comes to $75,000 (5% of the first $500,000, which equals $25,000, and 10% of the portion of the purchase price above $500,000 – in this case, $50,000), with mortgage insurance also tacked onto the monthly payments.
New buyers can put money away in a first-home savings account, but the maximum contribution allowed is $40,000. “You still have that big difference that you need to come up with if you were to buy a house for a million dollars,” Mwamba said. “So I still see the Bank of Mom and Dad helping the kids.”
The good news for hopeful buyers who want to put together the downpayment themselves without turning to family help: prices may not be expected to plunge in the next year or two, but most forecasts suggest they still have some way to fall at the beginning of 2026.
Rule changes could bring some relief for new buyers
Measures introduced by the federal government last year could also boost first-time buyers’ purchasing power, Mwamba said, even if they haven’t had a massive impact just yet.
Those include the extension of 30-year amortizations to buyers, allowing them to lower their monthly mortgage payments, and a hike in the mortgage insurability cap to $1.5 million, up from the previous limit of $1 million.
In Ontario, meanwhile, the provincial government has proposed tax relief for some first-time homebuyers, including a rebate of the 8% HST for new buyers purchasing a home for up to $1 million.
“All of these things are good,” Mwamba said. “I think this year was really about building a foundation and then next year, we’re going to see the impact of it. For the past few months, affordability has not changed for first-time homebuyers. It’s been a modest improvement, but it hasn’t been so drastic compared to during the pandemic.”
First-time buyers will hope that those government moves, and the prospect of slightly lower rates and prices in 2026, could improve an affordability picture that still looks bleak this year.
If rates fall far enough to allow borrowers to qualify at 5.25%, Mwamba said, that could prove a big positive development for the housing market. The stress test means borrowers are currently required to show they can afford a mortgage payment of either 5.25% or their contract rate plus 2%, whichever is higher.
“I can’t wait until we’re able to qualify at 5.25%,” she said. “I’ve yet to see it since the pandemic, but we’ll see. I think that will also be a big factor next year because this year, it hasn’t changed in a major [way] for people to have the incentive to come into the market.”
CMP
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