Down payment dilemma: Canadian first-time homebuyers’ fear of falling short is escalating
Home ownership remains a priority, despite ongoing challenges of low inventory, high prices and rising borrowing costs
Highlights:
- Number of first-time homebuyers worried about an insufficient down payment increased to 67% in 2023, up from 62% in 2021 and 57% in 2019
- In Greater Calgary, the percentage of first-time homebuyers who were worried about their down payment has increased substantially, from 42% in 2021 to 69% in 2023
- 74% of first-time homebuyers in the Greater Toronto Area, 71% in Greater Vancouver and 67% in the Greater Montreal Area reported feeling worried that they would not have a large enough down payment to purchase a home they really wanted
- More than a third of first-time buyers (35%) received financial assistance in a lump sum payment toward their purchase, while a quarter of buyers (25%) received support on their monthly mortgage payments
TORONTO, June 22, 2023 – First-time homebuyers in Canada are increasingly worried they will miss out on a home they really want due to financial constraints, according to a recent survey[1] released by Sagen™, conducted by Environics Research with a series of questions for Royal LePage.
According to the survey, which analyzed key trends among first-time homebuyers who purchased a home within the last two years, 67 per cent said that before buying, they worried they might miss out on the property they really wanted because of an insufficient down payment. This reflects a five point increase compared to the same survey question in 2021 (62%), and a ten point increase over the 2019 result (57%). When the same question was asked to first-time intenders – those who plan to buy their first home in the next two years – 63 per cent reported feeling worried that they will miss out due to an insufficient down payment, a three point increase from the same survey question in 2021 (60%).
“Canadians continue to face challenges in entering the real estate market, be it high interest rates, strict mortgage qualification standards, or difficulty saving enough money in a reasonable time period for a down payment,” said Phil Soper, president and CEO, Royal LePage. “That first transaction is the most difficult, and in today’s environment, first-time buyers are faced with large price tags, high carrying costs and the added challenge of qualifying for lending at higher rates due to the stress test. Still, they continue to prioritize home ownership, and view it as a milestone worth achieving. With household savings still sitting above historical norms, due to accumulation during pandemic lockdowns, many Canadians will have a leg-up on their down payment when they are ready to enter the market.”
First-time homebuyers in some of Canada’s major metropolitan regions reported feeling as worried, or more, that their down payment would not be sufficient to secure the home they really wanted, compared to respondents of the same survey in 2021. In the Greater Toronto Area, 74 per cent of first-time buyers reported feeling anxious that they might miss out on buying a home because of an insufficient down payment (75% in 2021). In Greater Vancouver, that figure increased to 71 per cent compared to 69 per cent in 2021; in the Greater Montreal Area, 67 per cent of first-time buyers reported this feeling, compared to 63 per cent in 2021; and in Greater Calgary, 69 per cent reported they were worried, up from 42 per cent in 2021.
Gifts and loans: Financial assistance trends
According to the survey, 35 per cent of first-time homebuyers nationwide say they received financial assistance in a lump sum payment from their parents or relatives toward the purchase of a home. Meanwhile, a quarter of first-time buyers (25%) say they received financial help with their monthly mortgage payments. Nationally, 46 per cent of first-time buyers received their financial assistance as a gift, while 37 per cent received financial support as a loan that is to be repaid.
“With demand continuing to outpace new supply and renewed upward pressure on home prices, securing a reasonable down payment will remain a significant obstacle for first-time buyers in Canada. Without equity to leverage, entering the housing market can be especially difficult, particularly in our major cities, where home prices are most often highest. Many first-time buyers have to rely on a financial boost, or at least a loan, from parents or family to help them buy their first property,” added Soper.
In search of affordability: Homebuyers looking elsewhere
As a result of tighter economic conditions, 34 per cent of first-time homebuyers across Canada say they purchased a home in a more affordable neighbourhood or region than they had originally planned, while 32 per cent say they purchased a smaller home. And, 11 per cent say they had to seek financial assistance from family or friends.
“While there may not be one direct path to home ownership that all first-time buyers take, many are willing to accept support and make concessions on their wish list in order to transact,” said Soper. “That may mean opting for a property in a more affordable area or with fewer bells and whistles. The goal is getting into the market and starting to build equity, not necessarily landing your dream home on the first try.”
According to the survey, first-time intenders feel similarly impacted by current economic circumstances. Compared to first-time buyers, a slightly smaller portion of this demographic (31%) say they will purchase a home in a more affordable neighbourhood or region than they had originally planned. Thirty-seven per cent of this cohort say they will purchase a smaller home than they had originally planned, while 16 per cent will have to seek financial assistance from family and friends.
On the ladder later: Average age of first-time buyers increases
Results of the 2023 survey found that 24 per cent of first-time homebuyers were under the age of 30; 33 per cent were aged 30-34; and 43 per cent were aged 35 or older. When compared to the 2021 survey results – which found that 29 per cent of first-time homebuyers were under the age of 30; 38 per cent were aged 30-34; and 33 per cent were aged 35 or older – we can conclude that Canadians are entering the housing market at a later age.[2]
“We know that historically speaking, Canadians today are getting onto the real estate ladder later in life, compared to previous generations. This correlates to the higher rates of post-secondary education and people spending more years in school; starting their careers and getting married later; and generally hitting life’s milestones later in adulthood. The fact that first-time buyers are entering the market older than they were just a few years ago is more directly linked to the increased cost of borrowing and the unprecedented home price appreciation we saw during the pandemic real estate boom,” said Soper. “Governments at all levels must work together to address the vital need to increase housing supply significantly and quickly for future generations of homeowners in this country.”
While Canadians may be entering the market later in life, the importance placed on home ownership remains strong, especially among young people who have seen their parents and grandparents benefit from the equity in their homes. Last month, Royal LePage released its 2023 Real Estate Investors Report, which found that younger investors – those aged 18 to 34 – are more likely to own more than one investment property compared to those 35 or older. This younger cohort of investors are also more likely to own an investment property despite not owning their primary residence.
2023 Canadian First-time Homebuyer Survey Chart: rlp.ca/table_2023first-timehomebuyersurvey
Regional Insights
Ontario
In the province of Ontario, 70 per cent of first-time homebuyers expressed feeling worried their down payment would not be enough to get the home they wanted (unchanged from 2021) prior to purchasing their first property. This number increases to 74 per cent among respondents in the Greater Toronto Area (75% in 2021).
“With much of the news cycle focused on interest rates and price fluctuations in the housing market these days, first-time homebuyers are constantly reminded of the challenges of entering the real estate market,” said Tom Storey, sales representative, Royal LePage Signature Realty in Toronto. “The first-time buyer demographic in the GTA is mostly made up of dual-income couples in their thirties. The age of the average buyer in the region has increased over time, as affordability barriers continue to force buyer hopefuls to postpone their purchase plans.”
Storey added that many young buyers are surprised to learn that they are approved for a smaller mortgage than expected as a result of qualification hurdles, such as the stress test. However, buyers remain eager to own, and are prepared to wait until they can afford the financial responsibilities of home ownership before entering the market.
According to the survey, 35 per cent of first-time homebuyers in Ontario (36% in the GTA) say they received financial assistance in a lump sum payment from their parents or relatives toward the purchase of a home. Meanwhile, 26 per cent of first-time buyers in the province say they received financial help with their monthly mortgage payments (29% in the GTA). Forty-four per cent of first-time homebuyers in Ontario and the GTA say they received their financial assistance as a gift.
“The biggest hurdle first-time homebuyers face is coming up with a substantial down payment. Using the ‘bank of mom and dad’ for a top-up on a down payment is not uncommon; buyers often receive a comfortable five-figure sum towards their first home from family. About half of Toronto first-time buyers we see are receiving help with their home purchase in some capacity,” continued Storey. “If their down payment will not get them into their dream home, most buyers are prepared to settle for a smaller property or a condo in order to build equity towards an eventual move-up home.”
As a result of tight economic conditions, 31 per cent of first-time homebuyers in Ontario purchased a home in a more affordable neighbourhood or region than they had originally planned (29% in the GTA). In the province, 34 per cent of first-time buyers purchased a smaller home than they had originally planned (37% in the GTA), and 14 per cent say they had to seek financial assistance from family or friends (15% in the GTA).
2023 Canadian First-time Homebuyer Survey Chart: rlp.ca/table_2023first-timehomebuyersurvey
Quebec
In the province of Quebec, 57 per cent of first-time homebuyers expressed feeling worried their down payment would not be enough to get the home they wanted (56% in 2021) prior to purchasing their first property, compared to 67 per cent of respondents in the Greater Montreal Area (63% in 2021).
“While home ownership is more affordable compared to other Canadian provinces, home prices in the Greater Montreal Area and within the province have risen significantly over the past three years, keeping many would-be buyers out of the market,” said Geneviève Langevin, real estate broker, Royal LePage Altitude in Montreal.
As a result of tight economic conditions, 43 per cent of first-time homebuyers in Quebec purchased a home in a more affordable neighbourhood or region than they had originally planned (43% in the GMA). In the province of Quebec, 29 per cent of first-time homebuyers purchased a smaller home than they had originally planned (37% in the GMA), and eight per cent say they had to seek financial assistance from family or friends (15% in the GMA).
“Buyers who purchased a home during the pandemic real estate boom bought at higher prices, but at historically low interest rates,” said Langevin. “We will have to wait for mortgage renewals to know the full effects of rising borrowing costs on the market. However, buyers are somewhat protected from default by the mortgage stress test, which requires them to qualify at a rate higher than the bank’s negotiated rate. This is a very good thing, as buyers can avoid having to sell as a result of not being able to repay their loan.”
According to the survey, 29 per cent of first-time homebuyers in Quebec (33% in the GMA) say they received financial assistance in a lump sum payment from their parents or relatives toward the purchase of a home. Meanwhile, 25 per cent of first-time buyers in the province say they received financial help with their monthly mortgage payments (28% in the GMA). Forty-seven per cent of first-time homebuyers in the province of Quebec received their financial assistance as a gift (50% in the GMA).
2023 Canadian First-time Homebuyer Survey Chart: rlp.ca/table_2023first-timehomebuyersurvey
British Columbia
In the province of British Columbia, 72 per cent of first-time homebuyers expressed feeling worried their down payment would not be enough to get the home they wanted (71% in 2021) prior to purchasing their first property. Those in Greater Vancouver report a similar level of concern at 71 per cent (69% in 2021).
“Today’s first-time homebuyer faces elevated property prices and rising interest rates, factors that are prolonging their inability to get a foot on the property ladder,” said Shawn Webster, sales representative, Royal LePage Little Oak Realty in Surrey. “There is a lot of anxiety about having enough money saved for a down payment. Young people are living with their parents longer and are making other concessions to build up their savings as much as possible.”
According to the survey, 41 per cent of first-time homebuyers in British Columbia and in Greater Vancouver say they received financial assistance in a lump sum payment from their parents or relatives toward the purchase of a home. Meanwhile, 19 per cent of first-time buyers in British Columbia say they received financial help with their monthly mortgage payments (26% in GV). Fifty-one percent of first-time buyers in the province say they received their financial assistance as a gift (40% in GV).
“Parents are far more financially involved in the home purchase process than they used to be; it is rare to meet a buyer who is able to get the necessary funds together on their own without outside help. Often, we see adult children receiving gifts of upwards of $100,000 towards their home purchase,” said Webster. “First-time buyers struggle to afford detached homes, so smaller strata units are more likely to be within their reach. Young people still prefer to own property in walkable communities that are close to amenities, though buyers who don’t have the option to work remotely must be more flexible about their location.”
Webster noted that low inventory continues to pose a challenge for first-time buyers, who are competing against existing homeowners with more negotiating power.
As a result of tight economic conditions, 25 per cent of first-time homebuyers in British Columbia purchased a home in a more affordable neighbourhood or region than they had originally planned (28% in GV). In the province, 32 per cent of first-time buyers purchased a smaller home than they had originally planned (34% in GV), and nine per cent say they had to seek financial assistance from family or friends (12% in GV).
2023 Canadian First-time Homebuyer Survey Chart: rlp.ca/table_2023first-timehomebuyersurvey
Alberta
In the province of Alberta, 68 per cent of first-time homebuyers expressed feeling worried their down payment would not be enough to get the home they wanted prior to purchasing their first property; significantly higher than the 46% reported in 2021. In Greater Calgary, 69 per cent of respondents reported feeling worried about their down payment (up from 42% in 2021).
“Strong demand for the little inventory that is available in the entry-level segment of the market is a point of frustration for many first-time homebuyers. Today, almost all properties in this price point are seeing multiple offers again,” said Doug Cabral, sales representative, Royal LePage Benchmark in Calgary. “Young buyers are having a tough time competing in today’s heated market, but many are prepared to make compromises on their wish list in order to get into their first home.”
According to the survey, 38 per cent of first-time homebuyers in Alberta and Greater Calgary say they received financial assistance in a lump sum payment from their parents or relatives toward the purchase of a home. Meanwhile, 24 per cent of first-time buyers in Alberta say they received financial help with their monthly mortgage payments (34% in Greater Calgary). Forty-two percent of first-time homebuyers in the province say they received their financial assistance as a gift (37% in Greater Calgary).
“In Calgary, parents often step in to help their adult children with their first home purchase once they have lost out on one or two offers. Not all first-time buyers require financial help, but those who do typically receive a sizable contribution to help them reach a down payment of 20 per cent,” said Cabral. “A larger down payment can reduce the size of the mortgage required or help new buyers access a property in a desirable neighbourhood. Most buyers in this market value location above all else.”
Cabral noted that by connecting with a real estate agent and mortgage broker before starting the house hunting process, first-time buyers can devise the best strategy to be competitive and successful in their search.
As a result of tight economic conditions, 34 per cent of first-time homebuyers in Alberta purchased a home in a more affordable neighbourhood or region than they had originally planned (34% in Greater Calgary). In the province, 31 per cent of first-time buyers purchased a smaller home than they had originally planned (42% in Greater Calgary), and 11 per cent say they had to seek financial assistance from family or friends (18% in Greater Calgary).
2023 Canadian First-time Homebuyer Survey Chart: rlp.ca/table_2023first-timehomebuyersurvey
Prairies
In the provinces of Saskatchewan and Manitoba, 77 per cent of first-time homebuyers expressed feeling worried their down payment would not be enough to get the home they wanted (54% in 2021) prior to purchasing their first property; the highest rate among surveyed regions.
“While home prices remain relatively affordable in the Prairie markets – even in the single-family detached segment – compared to some of Canada’s larger cities, local first-time buyers continue to feel squeezed by both elevated interest rates and home prices,” said Matt Miller, broker, Royal LePage Saskatoon Real Estate in Saskatchewan. “Higher borrowing costs are prompting some first-time buyers to put off their purchase plans temporarily, or at least adjust their expectations when it comes to the type of home they are searching for.”
Miller noted that a growing number of first-time homebuyers in Saskatoon are newcomers to Canada who are drawn to the region for its affordability.
According to the survey, 35 per cent of first-time homebuyers in the Prairies say they received financial assistance in a lump sum payment from their parents or relatives toward the purchase of a home. Meanwhile, 19 per cent of first-time buyers in the region say they received financial help with their monthly mortgage payments. Forty-two per cent say they received their financial assistance as a gift.
“Much of the financial stress related to buying a property comes from the desire to keep monthly payments low. While a portion of first-time buyers receive help from their family, many spend years saving up to build a substantial down payment, and others find creative ways to decrease their monthly expenses, such as renting out the basement to a tenant,” said Daniella Payne, sales representative, Royal LePage Prime Real Estate in Winnipeg, Manitoba. “The amount of financial support buyers receive varies. Some buyers receive just enough to cover legal costs, while others are given a sizable boost that allows them to shop for a larger home or a property in a more desirable location.”
Payne added that most buyers in Winnipeg are open to exploring neighbourhoods they may not have previously considered in order to successfully transact on the type of property they want.
As a result of tight economic conditions, 30 per cent of first-time homebuyers in the Prairies purchased a home in a more affordable neighbourhood or region than they had originally planned. In the region, 39 per cent of first-time buyers purchased a smaller home than they had originally planned, and eight per cent say they had to seek financial assistance from family or friends.
2023 Canadian First-time Homebuyer Survey Chart: rlp.ca/table_2023first-timehomebuyersurvey
Atlantic Canada
In Atlantic Canada, 65 per cent of first-time homebuyers expressed feeling worried their down payment would not be enough to get the home they wanted (49% in 2021) prior to purchasing their first property, slightly below the national average of 67 per cent.
“With major home price gains in 2021 and a series of interest rate hikes making monthly carrying costs more expensive, the last two years have been quite challenging for first-time buyers in the region. I’m not surprised that a growing number of them felt anxious about their ability to transact,” said Will Campbell, sales representative, Royal LePage Atlantic in Halifax, Nova Scotia. “Young Canadians in Atlantic Canada remain resolute in their desire to own a home, and many have made the necessary adjustments in order to get on the property ladder. For some, that has meant opting for a semi-detached home or a condo, rather than starting out in a detached house. For others, it has meant waiting a few more years to save up a larger down payment.”
Campbell noted that with rental prices continuing to rise, some renters are choosing to buy a home; many with the help of family or friends.
According to the survey, 44 per cent of first-time homebuyers in Atlantic Canada say they received financial assistance in a lump sum payment from their parents or relatives toward the purchase of a home. Meanwhile, 32 per cent of first-time buyers in the region say they received financial help with their monthly mortgage payments, and 49 per cent say they received their financial assistance as a gift.
“I would say about half of our clients who are purchasing their first home are getting help financially from their parents or relatives; significantly more than in the past. The sentiment around helping the next generation has changed significantly in recent years. Parents see the value in contributing financially to their kids’ futures,” he added. “It is not uncommon for a young buyer or a couple to receive a gift of 25 to 50-thousand dollars towards a down payment.”
As a result of tight economic conditions, 46 per cent of first-time homebuyers in Atlantic Canada purchased a home in a more affordable neighbourhood or region than they had originally planned. In the region, 30 per cent of first-time buyers purchased a smaller home than they had originally planned, and 12 per cent say they had to seek financial assistance from family or friends.
2023 Canadian First-time Homebuyer Survey Chart: rlp.ca/table_2023first-timehomebuyersurvey
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About the Survey
The study was completed by Environics Research on behalf of Sagen MI Canada Inc. A total of 2,223 interviews were conducted with Canadians aged 25-45 who had either purchased their first home within the prior two years or plan to in the next two years. Online interviewing was completed between February 22 and March 27, 2023. Quotas were set to oversample in urban regions with weighting to bring them into overall national proportions.
About Royal LePage
Serving Canadians since 1913, Royal LePage is the country’s leading provider of services to real estate brokerages, with a network of approximately 20,000 real estate professionals in over 670 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage Shelter Foundation, which has been dedicated to supporting women’s shelters and domestic violence prevention programs for 25 years. Royal LePage is a Bridgemarq Real Estate Services Inc. company, a TSX-listed corporation trading under the symbol TSX:BRE. For more information, please visit www.royallepage.ca.
About Sagen MI Canada Inc.
Sagen MI Canada Inc., operating through its wholly owned subsidiary, Sagen Mortgage Insurance Company Canada (doing business as SagenTM), is the largest private sector residential mortgage insurer in Canada. The Company provides mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers. Sagen differentiates itself through customer service excellence, innovative processing technology, and a robust risk management framework. For more than two decades, the Company has supported the housing market by providing thought leadership and a focus on the safety and soundness of the mortgage finance system.
For further information, please contact:
Stephanie Matthias
North Strategic on behalf of Royal LePage
stephanie.matthias@northstrategic.com
(416) 802-1612
[1]The study was completed by Environics Research on behalf of Sagen MI Canada Inc. A total of 2,223 interviews were conducted with Canadians aged 25-45 who had either purchased their first home within the prior two years or plan to in the next two years. Online interviewing was completed between February 22 and March 27, 2023. Quotas were set to oversample in urban regions with weighting to bring them into overall national proportions.
[2] In 2021, the maximum age of survey respondents was 40. In 2023, the maximum age of survey respondents was 45.
