Millennials, mortgages, mom and pop

August 21, 2017 Winnipeg Free Press

By: Joel Schlessinger

Caitlin and Shawn Dyck are real-estate curious no more.

The 20-something couple moved into their first home earlier this month after years of waiting on the sidelines watching mortgage rates, going to open houses, saving and budgeting — essentially testing the waters for a life milestone they believed was years away.

“I would say we were pretty real estate curious, yes, but it (home ownership) was our goal for a long time,” says Caitlin, 25, who works for a non-profit in the city.

Still, the couple never envisioned themselves in a home of their own so quickly. Sure, they’d been saving for a few years.

But they were struggling to come up with a down payment as real-estate prices continued their ascent.

“We figured it was going to be out of our reach for awhile,” she says.

At the rate they were going, they thought they wouldn’t be able to buy a home until their 30s. Yet with some money from their wedding last year, and some help from family, they managed to cobble together enough for a down payment.

“We wouldn’t have been able to afford it otherwise, and I think that’s the reality for a lot of people our age,” she adds.

While low interest rates have made mortgages more affordable in Canada, they’ve also helped fuel a nearly two-decade bull market in real estate with prices steadily rising and in some cases soaring, year over year. This has been a big benefit for older generations of homeowners — the boomers, in particular — who have seen the equity in their homes swell.

But for millennials such as the Dycks, the low-interest-rate environment is cutting both ways. Low rates help them afford larger mortgages than in the past.

But the high real-estate prices put them in an unprecedented position of needing to save for a significant down payment for homes that in some cases have tripled in value over the past two decades.

Increasingly, young buyers are relying on help from family to achieve the middle-class dream of home ownership. A recent Canada Mortgage and Housing Corporation (CMHC) survey found that almost one in five first-time buyers have received financial help from their family.

Financial adviser Josh Olfert — himself a millennial homeowner — isn’t surprised by the numbers. He says it’s difficult for young adults to get into the market without some kind of help.

Even when it’s not a financial gift, most first-time buyers need a co-signer.

“In my experience, as with most millennials, a co-signer was needed because my credit history was so young,” says Olfert, an adviser with Haven Wealth Management in Winnipeg.

(When he applied for a mortgage, he had only a credit card with a $1,000 limit.)

Because of the many challenges, Olfert says many of his peers choose not to pursue home ownership — at least at first.

“Their goals typically start with maintaining some financial security, travelling and accumulating long-term wealth — with having their dream home somewhere near the bottom of the list.”

Those who do chase the dream, and in turn their family is willing to help, have a few different ways to go about arranging the familial financing, says the head of a credit union in North Vancouver.

“The first and most common way is simply providing a gift, but that has issues,” says Chris Catliff, CEO and president of BlueShore Financial, adding about 70 per cent of its first-time buyers at the Vancouver financial institution rely on help from family.

Among the potential pitfalls is the possibility half the gift could end up in the hands of their child’s partner if they split up down the road.

He suggests as an alternative parents can still gift the money, but they can do it as a formal no-interest loan that has to be repaid only upon sale of the home.

In other instances, like Olfert’s, it’s not money that’s required. It’s having a parent co-sign. Even this can result in problems.

“It doesn’t really impact the parents’ savings and it’s easy to do, but the problem, of course, is then they’re on the hook for the child’s payments,” Catliff says. “That may impact their credit rating and create financial burdens for them.”

Regardless of how it’s done, parents or other family members backing first-time buyers may want to keep tabs on the kids’ financial well-being. And a new app actually provides that ability.

Monitor My Mortgage wasn’t designed specifically for parents helping their children with home ownership, but the issue came up during the product’s development.

“We designed that into the software so parents could actually have a little bit of governance of the loan position they would have on the property,” says Brent Hughes, founder of Monitor My Mortgage, software that lets mortgage holders monitor the lending market, notifying them if a better rate is available — net of penalties for breaking the existing mortgage.

In development, a focus group member — a man with a millennial daughter who was house-hunting — asked whether the software would allow parents to follow their children’s mortgage, too.

“It was funny because the gentleman’s daughter was sitting right there and she said, ‘I’d love that if you had access to it.’”

Hughes says this is largely a reflection that first-time buyers appreciate a little guidance along with the financial help from family, especially when navigating the early days of home ownership.

Caitlin and Shawn Dyck feel they are doing well managing their finances on their own. Yet even they feel trepidation about how their budget will pan out as they adjust to their new home.

“The first few months will be a nervous time just because we have all these new bills that we’ve never paid before,” says Shawn, 24, who works for a Crown corporation in the city.

“It’s a little different from paying the monthly rent and not worrying about anything.”

Still, the couple wholeheartedly believe home ownership is worth any budgeting challenges they may face in the coming months.

“It’s so nice that it’s ours as opposed to renting from somebody,” Caitlin says. “It feels really good.”