Reviews and recommendations are unbiased and products are independently selected. Postmedia may earn an affiliate commission from purchases made through links on this page.
Alberta’s first-time buyers are worried about affordability with many requiring financial assistance from their parents — though buyers here fare among the most financially fit in the nation, a new survey suggests.
Royal LePage and mortgage insurer Sagen released the poll this summer, finding that 68 per cent of Alberta first-time buyers were worried they would not be able to buy due to affordability challenges.
In turn, 55 per cent noted they have received some form of financial assistance from family.
“The bank of mom and dad has been a thing for a while now with people with gift letters as part of the transaction,” says Doug Cabral, realtor with Royal LePage Benchmark in Calgary.
“But now I am finding that the parents are coming in later co-signing on the mortgage, and throwing in more money so their kids can have the winning offer.”
To that end, the survey found evidence of this among Calgary buyers with 13 per cent having a parent co-sign, compared with nine per cent for the entire province.
Although the challenges are significant, first-time buyers in Alberta are among the least likely in Canada to need help from family, the survey found, with 58 per cent of respondents nationally (compared with 55 per cent) needing help from their parents or other family members.
Atlantic Canada was the most likely group with 70 per cent requiring assistance, followed by British Columbia at 64 per cent. Saskatchewan and Manitoba respondents were the least likely to require financial help with only 54 per cent receiving assistance.
Edmonton realtor Jenn McPhillamey with Re/Max River City notes the biggest challenge for first-time buyers in the city is not purchasing a home. The difficulty is finding the home they want in the price range they can afford.
“They are limited due to the stress test,” she says, referring to the borrowing benchmark of Office of the Superintendent of Financial Institutions (OSFI) that regulates lenders in Canada.
Prior to interest rates rising rapidly last year, 5.25 per cent was the stress test benchmark borrowers required to qualify for the mortgage. Today, the stress test is two percentage points above the borrower offered rate, typically higher than 5.25 per cent.
In turn, first-time buyers can now borrow less to buy a home.
Additionally, most first-time buyers want to purchase single-family detached homes. Even with the higher borrowing threshold, they still can in Edmonton. She cites as an example that an individual with $80,000 gross income can qualify at 5.54 per cent for the stress test for a mortgage of about $317,000.
“In Edmonton, that will get you an older house — 1960s — in an older neighbourhood and probably not renovated,” McPhillamey says.
Yet, “most first-time home buyers want something new and in the suburbs.”
Generally, those newer homes are now priced out of first-time buyers affordability range, she adds.
Compounding matters for the 68 per cent of Canadian first-time buyers worried about not having enough downpayment to purchase a home are competitive market conditions for quality, affordable homes.
That includes Calgary, where 69 per cent of those surveys indicated this was a concern (the survey did not provide data for Edmonton).
“It’s a really competitive environment, and for first-timers, it’s not a level playing field out there,” Cabral says.
“People that are well-heeled, comfortable dropping conditions and taking on some risk are doing that right now.”
He further mentions many first-time buyers “are feeling a lot of pressure to get into uncomfortable situations” to win bids on homes with multiple offers.
“Even if your offer is accepted with conditions, you still really need your ducks in a row with the deposit, the home inspector and your broker ready to go so everything can be finalized within one week,” Cabral says.
“Otherwise, you may not get the home.”
That said, at least in Edmonton, most first-time buyers do not appear to have trouble coming up for the minimum five per cent down payment for the purchase, McPhillamey says.
The problem is they may not have much left over for savings afterward, which may explain their preference for newer or renovated homes, she adds.
“They definitely don’t have any extra money for renovations.”