TD Canada Trust explores the challenges of first time homebuyers today compared to Boomers' experiences and provides advice on how to get into the property market
TORONTO, April 23, 2013 /CNW/ - From high property prices to tighter lending conditions, young first-time homebuyers today say they face challenges that their parents didn't have to worry about. According to new research from TD Canada Trust, Generation Y (or, Millennials) identifies three main obstacles to homeownership that weren't as much of an issue for Boomers: the ability to save for a down payment, housing prices and insufficient salaries.
"The path to homeownership can seem daunting at first, but with financial discipline and smart planning, it's possible for young Canadians to realize their dreams of buying a home," said Farhaneh Haque, Director, Mortgage Advice, TD Canada Trust. "Before you take the leap into homeownership, crunch the numbers with an expert so you know exactly how much you can afford and what sacrifices you may need to make as a homeowner to live comfortably and continue to save for your future."
The research revealed differences in the challenges Millennials say they face as first time homebuyers today and the challenges Boomers recall facing when they were first time homebuyers, and suggests that entering the real estate market today may be more difficult than it was 30 years ago. The top three obstacles for Millennials, as compared to Boomers, were:
- Saving a large enough down payment (57% of Gen Y non-homeowners, versus 33% of Boomer homeowners)
- Property prices are too high for first time buyers (52% of Gen Y non-homeowners, versus 16% of Boomer homeowners)
- Not earning enough to afford monthly mortgage payments (48% of Gen Y non-homeowners, versus 13% of Boomer homeowners)
The list doesn't stop there. Haque offers advice on how Millennials can overcome these and other challenges as they prepare to enter the real estate market for the first time:
Skyrocketing property prices make it difficult to save enough for a down payment
Half of Millennials think home prices will continue to increase over the next 12 months and more than half (57%) feel that saving a big enough down payment is a concern. Haque advises potential buyers to make the largest down payment they possibly can, even if that means waiting longer to buy.
"While young people may be anxious to start building equity rather than paying rent, waiting until you have a larger down payment can save you thousands of dollars over the life of your mortgage," said Haque. "First time buyers can also consider the federal government's Home Buyers' Plan, which lets you borrow up to $25,000 from your RSP for a down payment on your first home."
In addition, Haque suggested future homebuyers create a "down payment fund" by setting up automatic transfers each month into a TFSA or high interest savings account.
Not earning enough to afford monthly mortgage payments
"For what you are paying in rent, you may be able to own your home so why not take a mortgage for a test run" said Haque. "Crunch the numbers with a mortgage specialist and then test whether you can manage the costs. Set aside your expected mortgage payments plus all other home expenses for a few months, less your current rent, and see how you do. Over this time, if you find that you are stretched too thin or run out of money before the end of the month, look for ways to cut back on other expenses and keep saving."
Tighter lending conditions
One-quarter of Millennials see the tighter lending conditions as a barrier to breaking into the housing market. Only 6% of Boomers felt this was an obstacle when they purchased their first home. Haque said mortgage regulation changes introduced in 2012 were designed to help protect Canadians from taking on too much debt and not limit qualified buyers from their desire of home ownership. Haque suggested buyers seek pre-approval for a mortgage before house hunting, so they know exactly how much they can afford.
"Meet with a mortgage specialist who can walk you through the home buying process, assist in examining your affordability and help you find the mortgage that is right for you. There are a variety of mortgage options such as fixed versus variable interest rate mortgages, short and long term mortgages and cash back mortgages," said Haque.
Balancing debt and homeownership
Millennials cite another barrier to homeownership: student loans. While only 2% of Boomers saw that as a barrier to homeownership when they were first-time buyers, 23% of Gen Y say they need to get their student debt under control.
"If you are working towards paying off student loans and wish to purchase a home, speak to your bank about how you can best pay down your loan faster and still save for a down payment," said Haque. "A good first step is to set up a regular preauthorized transfer of a portion of your pay cheque onto your loan. Try to gradually increase your repayments over time. Every little bit helps and chances are you may not even miss that extra $5 or $10 a week."
TD Canada Trust's online debt management calculator helps you determine how much debt you can reasonably take on based on your income, current debt payments and expenses: http://www.tdcanadatrust.com/planning/life-events/new-job-promotion/managing-debt/index.jsp.
Canadians can also ask questions related to broad range of financial advice, including buying a new home, at the TD Helps community: www.tdcanadatrust.com/homeownership.
About the TD Canada Trust New World Poll
TD Bank Group commissioned Environics Research Group to conduct an online custom survey of 6,014 Canadians aged 18 and older, including 1,072 Millennials (born 1981-1999) and 2,215 Boomers (born 1946-1964. Furthermore, the sample included 705 Millennial non-homeowners and 1,853 Boomer homeowners. Responses were collected between January 10th and 25th, 2013.
About TD Canada Trust
TD Canada Trust offers personal and business banking to more than 11.5 million customers. We provide a wide range of products and services from chequing and savings accounts, to credit cards, mortgages and business banking, to credit protection and travel medical insurance, as well as advice on managing everyday finances. TD Canada Trust makes banking comfortable with award-winning service and convenience through 24/7 mobile, internet, telephone and ATM banking, as well as in over 1,100 branches, with convenient hours to serve customers better. For more information, please visit: www.tdcanadatrust.com. TD Canada Trust is the Canadian retail bank of TD Bank Group, the sixth largest bank in North America.
Image with caption: "Housing Affordability Across Generations, Then and Now (CNW Group/TD Canada Trust)". Image available at: http://photos.newswire.ca/images/download/20130423_C7779_PHOTO_EN_25890.jpg
PDF available at: http://stream1.newswire.ca/media/2013/04/23/20130423_C7779_DOC_EN_25894.pdf
PDF available at: http://stream1.newswire.ca/media/2013/04/23/20130423_C7779_DOC_EN_25895.pdf
PDF available at: http://stream1.newswire.ca/media/2013/04/23/20130423_C7779_DOC_EN_25893.pdf
PDF available at: http://stream1.newswire.ca/media/2013/04/23/20130423_C7779_DOC_EN_25892.pdf
SOURCE: TD Canada Trust
Steve Presant / Jillian Turgeon
Paradigm Public Relations
416-413-5194 / 416-413-5198
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Sandra De Carvalho
TD Bank Group
416-944-7095
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