One of the issues that some parents worry about is the difficulties that their children will have buying a house. With two adult sons ourselves, we know what this means. Today, the average price of a detached house in Toronto exceeds $1,350,000, and therefore the ability of the next generation to afford a house is getting increasingly difficult. Add in rising interest rates, and the affordability challenge gets even greater.

 

“Overall we estimate that over the past year, gifting amounted to just over $10 billion, accounting for 10% of total down payments in the market as a whole during that period,” Benjamin Tal

 

How is a child going to afford the $270,000 down payment required, so that they do not need a high-ratio mortgage? The bank of Mom and Dad, of course. Over the last several years, we have seen more parents gift money to their kids to buy a house than ever before.

 

A CIBC report, published in late 2021, found that roughly 30 per cent of first-time homebuyers, and nearly nine per cent of existing homeowners received financial help from family this past year to purchase a house, according to CIBC data. First-time buyers received an average gift size of $82,000, while “mover-uppers”  were gifted a whopping average of $128,000 in September 2021.

 

We thought we would take a look at this situation and provide some advice.

 

Do the Math Before You Make the Promise.

The one thing we do for our clients before they make a commitment is run some financial scenarios to make sure that they will be financially ok if they give money away. We have had a few good years of wealth creation that makes it appear that there is surplus capital available, but you need to stress-test the portfolio for potentially lower returns going forward. By revisiting our client’s financial plan, we can find the best solution for them and their children. Your Gift Now may take the shape of a direct financial gift, a loan to your child or even simply just being a co-signer on the mortgage.

 

“Our goal is help our clients explore every avenue of assistance without compromising their own financial game plan.”

 

Be Disciplined

The search for a house can be an emotional juggernaut, especially these days with multiple offers and bully bids. It is important for our clients, and their children, to be disciplined on price so that they don’t get carried away and bite off more than they can chew. It can be difficult to resist the tendency to stretch for the house they really want. That is why we are here. We are happy to be a sounding board to make sure that the numbers work for both the parents and their children.

 

“Helping your children buy a house can be an emotional roller coaster”

 

Good For One, Good For All

Parents will likely face this funding issue for one child first, but should be aware that they will likely face the same funding request for each of their children over time. This combined commitment can really add up so it is important to factor in the total potential amount when doing the financial modeling.

 

The desire of parents wishing to help their children has become even greater over the last two years. We have helped many of clients provide their Gift Now in a responsible, well thought out, and informed manner. We feel that it is essential to have a trusted financial advisor to provide an objective, dispassionate voice of reason to help in the decision making process. By finding solutions that fit into our client’s Life Plan, we create winning solutions for everyone.