Tuesday, August 08, 2017

Enough already!

By Mark Kerzner, President, TMG The Mortgage Group

Changes to the mortgage rules may have gone too far.

Just when we think, when we are told, that the mortgage regulation pause button has been hit, we see the Bank of Canada (BOC) increase its overnight rate by 25 bps, OSFI released a new discussion paper, including a recommendation to qualify all borrowers at 200 bps above the contract rate, and proposed changes to close a number of tax ‘loopholes’, all of which may have considerable impact to our livelihoods. Add to that the ongoing discussion about introducing Risk Sharing in 2018 and a number of us are saying “enough already!”

In terms of the Bank of Canada 25 basis point increase there may be another in the Fall. In 2015 when the price of oil plummeted the Bank of Canada decreased the overnight rate by 50 bps. Even though the banks only passed 30 of those 50 basis points along to consumers, the Bank of Canada essentially has a “free” 50 bps to play with. Notwithstanding mixed growth data, a Canadian dollar that has appreciated approximately 10% this year and inflation data that suggests we remain at the bottom end of the tolerance levels, there is essentially another 25 bps of rate yet to recapture. 

The Office of the Superintendent of Financial Institutions (OSFI) is proposing changes that align with their July 16 announcement and strengthen the expectations they have in a number of specific areas including: 

  •  Requiring a stress test for all uninsured mortgages of at least 2% above the contract rate
  • Requiring that Loan to Value measurements remain dynamic and adjust for local market conditions where they are used as a risk control, such as for qualifying borrowers 
  • Expressly prohibiting co-lending arrangements that are designed, or appear to be designed to circumvent regulatory requirements

We, in the mortgage brokerage industry, have repeatedly made the following requests:

  1. Don't make any more changes without proper consultation and data to support. 
  2. Allow refinances back into portfolio insurance. Make the Loan-to-Value limit 75% instead of 80% if they really consider it risky business. This would be especially important if further regulations were introduced to qualify conventional purchasers at a benchmark rate as it would slow down purchase activity leading to people staying in their houses longer and likely seeking to renovate and improve them instead of moving.
  3. Uncouple the stress test from the benchmark rate (currently at 4.84%) and set it using an agnostic measure. The difference between the 5 and 10-year bond yields could be used as a proxy with a floor set to 75 points.  Create safeguards for clients who qualified under the previous rules to be able to port, renew or refinance based on qualifying at the contract rate.
  4. Apply the newly adjusted stress test to all mortgage applications. This will allow for industry competition among channels and among lenders. Keep in mind that OSFI’s mandate is to ensure the solvency of the financial institutions for which it regulates. If it there is separate qualifying criteria between high and low ratio loans then it may incent people to ‘cheat’ with their down payments to end up in a low ratio bucket but thereby adding risk to banks balance sheets.

Changes to close ‘loopholes’ for ‘income sprinkling’ and ‘passive investments’ could potentially be the biggest changes to our tax system since the introduction of capital gains more than 40 years ago. The mortgage industry’s association, Mortgage Professionals Canada, is consulting with other national industry associations. 

We at TMG are consulting with tax experts so that we have the opportunity to recommend a course of potential action.

What I can say and what I have seen is that a lot of collective voices are definitely more meaningful than a sporadic few. 

Sunday, July 23, 2017

We are TMG -- Our Story

It was 27 years ago this month that TMG The Mortgage Group was born.  With a network of approximately 800 mortgage brokers and agents nationwide, TMG has assisted hundreds of thousands million Canadians find the mortgage to best suit their financial needs. TMG operates on the premise that a mortgage broker provides the best value for consumers and has the knowledge and expertise to assist anyone seeking mortgage financing advice.

We thought it might be a good time to share our story.

And so, it begins: In the early years, the company operated as Kirk capital Corp. and opened its first franchise in British Columbia under London, Ontario-based “The Equity Centre,” led by industry pioneers Grant and Debbie Thomas. Four years later, CIBC purchased the master franchisor and changed the name to The Mortgage Centre. In 1997, Kirk Capital Corp. parted ways with that franchise network and changed its name to The Mortgage Group, becoming an independent privately-owned mortgage brokerage firm.

Both Grant and Debbie are committed to the mortgage industry and are dedicated to the ideals of ongoing training and education as well as increasing professionalism among its brokers, agents and regional mangers as well as in the industry as a whole. Many TMG alumni have gone on to become the industry’s stars and thought leaders.

Debbie’s background in teaching and Grant’s experience in the hospitality industry have served them and TMG well. They are invested in the industry and have developed policies and procedures that assist each agent to be successful and grow their business.

Grant and Debbie are proud to be one of the longest operating mortgage brokerages in Canada and they have been the principals since day one. This shows a strong commitment to the industry. The role of a brokerage is to lead, innovate and provide oversight. We strongly believe that TMG has succeeded in doing just that.

Not only are Grant and Debbie committed to the success of TMG, they have shown passion and dedication for the success of others and the industry at large.  As part of a very influential Western core group of broker advocates in the early 1990s, they were instrumental in ensuring that Western brokers were properly recognized. Through their efforts, mortgage lenders such as Scotia Bank and HSBC added the West to their business market

They have been able to maintain and even strengthen the TMG family in the wake of impressive growth. TMG is not a big, faceless company. It is a small company that continues to grow.

For Debbie Thomas, Partner of TMG, education was the key to helping brokers and agents develop and grow their business. “When we started, mortgage brokers had a bad rep and were considered a last resort. I wanted to educate the public of the benefits of using a broker,” she said.

Over the years, the industry has made inroads into gaining market share, which sits at approx. 35% among all borrowers -- higher among first time home buyers. For Debbie Thomas, that’s still not enough. “We just have to keep sending our message out to consumers and make sure our brokers are well-trained.”

Today, TMG continues to develop unique training programs, customized payroll systems, and personalized marketing materials. TMG also built its own recording studio and remodeled its training facility with full HD, Green Screen, broadcasting capabilities.

TMG, an award-winning brokerage, has attracted mortgage leaders from across the industry and across the country. Its regional sales leaders are experienced and well-respected individuals who work directly with brokers in their regions.

 “TMG The Mortgage Group Canada Inc.  is a special company” states Mark Kerzner, President. “So much of our success is based on the relationship that we have developed over the years with our brokers, lenders and industry providers. We are continually looking to the future for ways of enhancing a broker’s value with an end consumer. At TMG we are on the right path.”

Tuesday, June 27, 2017

The Warren Buffet Factor

A lot has changed since Warren Buffet decided to invest in Home Capital and the Canadian housing market.

The billionaire’s company, Berkshire Hathaway, gave the beleaguered company a $400 million cash infusion along with a $2 billion line of credit. 

Prior to this, Home Capital was in challenging position, predicated by a damaging allegation in April that the company had misled its shareholders by disclosing too late that an internal investigation found evidence of fraud and had cut ties with 45 brokers. Although the alleged non-disclosure had occurred at least two years prior, and the company’s business fundamentals were solid, the effect was immediate -- account holders started to withdraw their money, which resulted in a small “run” on deposits.

Shareholders started to sell, resulting in a drop in share price. This phenomenon also spread to a few other alternative lenders in the market, who also saw their share prices fall, for no apparent reason.
While the Home Capital controversy shook up the market somewhat, and fed the rumour mill with talk of bubbles, etc., none of that has come to pass. 

Home Capital Overview

Based in Toronto, the publicly-traded company offers mortgage lending, deposits and credit cards through its principal subsidiary Home Trust. Ninety per cent of the Home Capital’s business originates from uninsured mortgage clients who are turned away from traditional Banks.

As one of Canada’s largest alternative lenders, the company is an important player in the country’s housing market. A niche-market lender, Home Trust was one of the go-to lenders that mortgage brokers used for self-employed borrowers as well as those with some damaged credit. When the crisis occurred, brokers had to quickly find other mortgage lenders to take up the slack.

 If Home Capital was a bigger player in the market, there could have been dire consequences. Its mortgage loan portfolio is approx. $20 billion compared to the $1.1 trillion in residential mortgage loans of the Big-Six banks.

Was there a real issue?
Most analysts acknowledged that the underlying fundamentals of the company were steady, although the allegations created uncertainty.  Mike Rizvanovic, an analyst with the Veritas Investment Research in Toronto said in a Financial Post interview, “This is a very peculiar situation where Home Capital has no issues around credit, and no issues with a capital shortfall. Yet they are being decimated in terms of their viability as an ongoing entity.”

Clearly, Warren Buffet agreed.  Not only does his investment put much-needed capital into Home Capital, it was also a strong endorsement for the company. 

“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” said Buffet, Berkshire’s chairman and chief executive officer, in a statement.

The Buffet Factor in Action

Almost immediately, Home Capital shares went up. Other alternative lenders also saw their shares recover. Depositors are coming back, lured somewhat by an excellent interest rate on deposit accounts. 
The other immediate effect was increased confidence in the Canadian housing market as a whole. Many mortgage brokers were forced to find alternative lenders when Home Trust depositors began pulling out their money, leaving the company with a liquidity problem. Mortgage brokers have now begun referring business to Home Trust again.

Warren Buffet’s investment sends a strong, positive message about Home Capital and also about Canada’s housing market.

Wednesday, April 19, 2017

Bidding Wars – Cause or Effect?

What was once the phenomena of the two, major urban centres – Vancouver and Toronto -- has now bubbled over to smaller cities and communities within commuting distance of the big two. 
Bidding wars are now commonplace and can be both rewarding and stressful.

The numbers can vary to $10,000 to $20,000 over asking price, and that’s at the low end, to upwards of hundreds of thousands over asking. One house in Vancouver went for $1 million over asking recently – what seller is going to say no to that? But can the market sustain it? 

Sales of existing homes rose by 8% in February compared to the same month a year earlier, while the national average home price soared 17% according to a Canadian Real Estate Association (CREA) report.

Some experts point to these bidding wars as the cause of high prices. Others say that the phenomena is the result of lack of supply. It may be a bit of both. 

While sellers may be happy about cashing out, the problem becomes, where to go? And buyers, who want to buy a home may not have the financial means to get into a financial tug of war with other buyers. The stress alone may cause them to just stop looking.

Patricia Boon, a veteran Realtor, who has been working in the Woodstock area for 30 years is not happy with the way houses are being sold these days.

“I don’t feel good about what’s happening. No one is looking out for the buyer,” she said. “This is isn’t good for anyone. Why play a game with the most expensive item you’re ever going to buy in your life?”

In Woodstock prices are up 15% over last year and, similar to other cities, there is a lack of single-family homes available for sale, which is creating a perfect scenario for bidding wars as we head into the Spring market.

Even more concerning for Bonn are the offers that go in with no conditions. “It’s not unusual for appraisals to come back lower than the purchase price two weeks before closing, even with a pre-approval,” she said. “Then the buyer has to scramble to come up with more money for the down payment.”

Bonn recalls a time not too long ago when the housing market was facing a similar situation.  “When it was time to remortgage, homeowners could not qualify. Or the market had corrected and now the mortgage that was higher than the property value. Many people walked away.”

To Condition or Not to Condition

Purchasing with no conditions is a slippery slope. Mike Rogozynski, a mortgage broker with OMAC Mortgages Powered by TMG, who works out of the Woodstock area is seeing more out-of-town purchasers and investors coming into the area, which already has a lack of housing supply.

 “Realtors lining up offers is definitely a factor for making the case that bidding wars may inflate prices; however, it’s a fine line,” he said. “ We already have a growing demand and lack of supply.”
Rogozynski strongly advises his clients to always put in a financing condition, even if it’s just three business days. “Anything can happen, even with a pre-approval,” he said. “A key component is the property. An appraisal may come back with a lower value, or a home inspection may turn up something negative.”

The Appraisal

Many appraisers are looking for marketing support when they value a property. Lending decisions are made on a property’s fair market value, which is defined as the market value of an interest in land at the highest price reasonably expected when sold by a willing seller to a willing buyer after an adequate amount of time and exposure to the market.

So, who determines the value of that property? One could argue that the market itself determines the value, which may be true, but a lender wants to know if the purchase price is reasonable.  An appraiser, who is specifically trained and who has sufficient experience, will be asked to offer an independent, impartial written opinion of the property’s value.

Appraisals are done for a specific client -- the lender. Because real estate is the major security for mortgages, the market value estimate needs to be as accurate as possible. 

One appraiser we spoke to from the Brantford area, who wishes to remain anonymous, says he tries to get to the purchase price when evaluating a property but sometimes the sale is a few weeks ahead of the market. For example, appraisers will conduct a comparative analysis of similar properties in the area that have recently sold. If prices are increasing, it may not show up in their analysis yet.

 “I also get a lot Realtors telling me the client spent $50,000 to renovate a kitchen and expect it to value out at that amount, which is not the case,” he said. “The fact that it was an upgrade is considered and is an added value, but not the costs.”

“At the end of the day, we have to be realistic of a property’s true market value and be able to back that up with data.”

A Realtor’s role in rising house prices

A written response from the Canadian Real Estate Association (CREA) said the 'bidding war' phenomenon is usually limited to very active markets where strong demand overwhelms limited supply. Although other Canadian markets may see multiple offers for exceptional/rare/sought-after properties, at the moment it is in Toronto and environs where this occurs regularly.

Pierre Leduc, spokesperson for CREA wrote, “As a marketing strategy, a REALTOR® whose seller has a property that is: a) located in an in-demand area and/or b) a unit-type that is in high demand (e.g. 4-bedroom SFH with garage) may recommend to his client to accept written offers at a certain date/time, which provides potential buyers clarity on when and how this sale will occur.

“It is the buyer's responsibility to decide whether or not to participate in this type of sale, and ultimately, how much to offer,” he added.  “REALTORS® don't have any special persuasive powers to force their clients to offer more than they can afford, offer more than the lender will loan them based on assessed value, forego a home inspection or remove other conditions just to be the successful bidder.”

A free market?

Paul Taylor, Executive Director for Mortgage Professionals Canada (MPC) said it was probably unfair to vilify Realtors in a market that has a significant lack of supply. “The current market is driven by demand and there are so few single-family homes available.”

MPC has been working closely with the legislatures, sharing information and making suggestions. One idea is to include a minimum 3-day cooling off period for buyers so as to relieve some of the stress.

“We favour a free market system and we don’t want to get in the way of that,” he said. “However, there is increasing impatience among buyers who want to purchase, which increases the pressure they feel to make condition-free offers.  It’s tough to say what’s best in the long run.”

Bidding wars are indeed risky. If this is the only option, here are some tips:

  1.  Do your research -- learn about the market values in the neighbourhood. 
  2. Get pre-approved. Make sure your mortgage broker has all documents upfront. 
  3. Although conditions with offers may get sidelined, try to get a financing condition for at least three business days
  4.  Sometimes, it’s not always just about the money, so write a letter explaining why you want that particular house.

Good luck!

Monday, March 20, 2017

Stressing over the debt-to-income ratio? Don’t!

The debt-to-income ratio has hit the headlines again.  This time the ratio rose to 167.3 % in the fourth quarter of 2016 compared to 166.8% in the third quarter. That means for every dollar of disposable income, consumers owe $1.67.

This increase has been fuelled by mortgages and low-interest rates, which has some policy-makers getting antsy.  They’re concerned at what could happen if rates rise. Yet consumers have been able to pay their debt relatively easily. And low interest rates have allowed consumers to pay down more of their mortgage principal, with payments split almost evenly between interest and principal in the fourth quarter.

Benjamin Tal, Deputy Chief Economist for CIBC, isn’t having it and is calling an end to the debt-to-income ratio. In his weekly Market Insight he calls the ratio the most quoted number and the most useless economic indicator. The main reason is what the number is assessing versus what it doesn’t assess.

For example, it’s unlikely that consumers will pay off their mortgage in a year, yet the total debt amount is factored into the debt-to-income ratio.  Mortgage debt accounts for 65.5% of ratio.  The ratio also looks only at the debt of consumers who already have debt rather than the income of people with and without debt.  Perhaps not a totally accurate picture, then.

According to Tal, in a “normally functioning economy, debt will rise faster than income.”  The ratio is designed to rise and has only fallen twice in the past 25 years. 

Tal also pokes holes at the pace of increasing debt. Here are the numbers:

  • Total real household debt is now rising by just over 4%, in line with the recovery of the 1990s
  • Consumer credit is  rising by only 2.5%, slowest pace over the past 30 years (non-recessionary)
  • Mortgage credit rising by 5.2%, which is low
  • Household incomes rising at 2.5%, the long-term average
  • Seems pretty normal.

TD Bank economist Diana Petramala wrote “Debt growth has accelerated somewhat, but it is not growing at the double-digit pace that would typically be considered dangerous.”

Equifax has reported that 46% of consumers were decreasing their debt.

So, Tal is pretty clear when talking about debt -- make sure to say something about what’s included in that debt. The simple catch-all number may be too simple for a complex story.

If you are carrying high interest debt and want to talk about opportunities to consolidate by refinancing, speak with a mortgage broker.

Wednesday, February 22, 2017

What’s really going on in Canada’s housing market?

What are we to make of the mixed messages in the media? Are we in a bubble? Has the bubble burst? Are prices going up? Are prices going down? Are sales down or are sales up? Are new housing starts up or are they down? Is this a good time to buy? Are first time home buyers abandoning the market?

According to the Canadian Real Estate Association’s most recent report national home sales were down slightly from December 2016 to January 2017 by 1.3%. Yet actual activity in January was up 1.9% from the previous year. Newly-listed homes dropped 6.7% but prices were up; however, the average sale price has hardly changed in a year. What are consumers to make of it all?

Then there are the recent changes made in the mortgage industry that many say have further eroded affordability and have made it more difficult for first time home buyers to purchase a home. What is really going on?

Here’s what we do know – all real estate is local. In cross-country interviews, a snapshot emerges that concludes the following:

  1. There is a lack of supply in all provinces, which dampens market activity
  2. First time home buyers are still in the market but are now looking at lower-priced homes
  3. Many homeowners are taking a wait-and-see approach before deciding to list, which is contributing to the lack of supply
  4. High-end homes are the slowest to sell
  5. Spring is coming

Here’s what a sampling of TMG mortgage brokers say is going on in their provinces.

Katy Mackenzie, Vancouver, BC
Due to the introduction of the B.C. Home Owner Mortgage and Equity Partnership program, condos or strata properties are very attractive to first time homebuyers.  We’re seeing multiple offers still and the re-introduction of Realtors asking buyers for subject-free offers, which is always risky.  Even in cases where we can offer pre-approvals, and many lenders are not issuing those anymore, we all know that anything can change. Many lenders will not look at a deal unless there’s already an existing offer.

Detached homes in the Vancouver area are not moving because it’s become harder to qualify and homes over $1million dollars are not insurable so there are fewer buyers. The luxury home market has also gone quiet because sellers have not brought down their list price.

We’re seeing multiple offers on small sq-ft properties. For example, a 415 sq.ft unit sold for $24,000 over asking price, another went for $31,000 over.

First time home buyers are still there. With the new qualifying rules, those who were on the affordability margin have left the market. Some are discouraged but others are being pro-active and paying down debt. Those still in the market have the down payment but are looking for lower-priced homes.

February has been significantly busier. Home buyers are still active and are still qualifying in the $1 million and below price range.

Layne Walters – Calgary, AB
Contrary to popular opinion, the real estate market here did not correct much – prices have been the same here for 10 years. House values have roughly been the same. Because there are so many ups and downs, supply and demand is always adjusting.  There is a challenge in the high-end market but there is stability here – homes are more affordable now then in the 80s – it’s not any cheaper to rent.

It’s the economy that’s struggling here.  Half of the city works in the oil and gas industry and they have been impacted in the last few years. The other half of the population are still working and doing okay.

What I am finding, however, is more people taking the time to learn about mortgages and their options, getting pre-approved then waiting. There’s not an urgency to buy because they know prices are not going to rise.  The market is moving at a slower pace but it’s steady. People still buy when it makes sense for them.

The recent mortgage changes have had less of an impact. Affordability is not really an issue. Minimum wage has gone up and house prices have remained stable.  It’s a slow, steady market – boring actually, if you compare it to what’ s happening in Toronto and Vancouver. First time home buyers come in and ask what they can afford. We’re not impacted by the new rules as have other markets.

This year has some promise. The oil and gas industry is hiring again so there will likely be a migration shift back to Alberta. The economy is projected to expand. We do have inventory available – it’s going to be a slow, steady kind of year. Sometimes it’s good to be boring.

Amber Rambally, Saskatoon, SK
Market activity is starting to pick up here especially for homes that are priced correctly. New builds are sitting because they have been significantly overpriced, but we’re starting to see prices dropping in those as well. The market is flooded with new condos, but prices of older condo conversions have dropped significantly.

The resale market has stayed even in the last year depending on how much work they need. Houses built in the 80s, early 90s are good quality and are typically on larger lots and have held their value quite well. Bungalows from the 70s were priced high but have now become more affordable.

However, buyers have been hesitant about getting into the market because of the new mortgage rules.  There have been lay-offs due to the slowdown in the oil and gas industry but we’re seeing people going back to work.

Clients are asking more questions and wanting pre-approvals but I don’t see them making that decision to get into the market yet.

What is nice in this market is that first time home buyers don’t have to start in a condo, they can get into some single-detached homes. While the new rules may have impacted affordability, having the down payment has not been a challenge. I’m sure 2017 will be a growth year in the market.

Jeff Sparrow – Winnipeg, MN
The market is hot and has been on an upswing for the last 10 years. There are tons of new home starts and new developments -- we have one development in the south end that’s slated for 30,000 homes. That’s in addition to six other sub-divisions.

There’s also lots of activity in the resale market but due to lack of supply there are multiple bids – it’s the sign of the times.

We have lots of jobs – manufacturing, agriculture, blue-collar, white collar.  If you’re in the construction industry, you’re busy.

Winnipeg’s unemployment rate is low. Manitoba’s growth is slow and steady and very stable. I anticipate that 2017 will be a good year.

The mortgage industry here is competitive, not helped by the fact that we have the largest per capita population of credit unions in the country. We work hard each day for our business in a very active mortgage market, but we’ve been dealing with this for awhile. Our approach to working with clients has not changed – we educate them and we offer them options –something they can’t get from a bank.

We’ve also seen an uptick in first time, quality home buyers. These clients need someone to have an intelligent conversation with them about how the mortgage lending industry works. We usually win the client over.  We’re looking forward to 2017.

Mike Rogozynski – Woodstock, ON
Here’s the new normal -- lack of supply. We have buyers but nothing to buy.  When a desirable home comes on the market, Realtors set a day for offers, resulting in multiple offers.

I know this happens in many markets now but it does inflate the selling price. In these type of situations Realtors want no financing conditions.  This adds an extra challenge for mortgage brokers, so I make sure to have all documents beforehand and I really push the online application process, rather than an in-office meeting, to speed up the process. We haven’t seen skyrocketing prices yet, like in Toronto, but prices are increasing. Houses are also closing faster – 30-45 days in areas.

As for the mortgage rule changes, most people are not aware of them and are confused when told that someone with 20% down gets a higher rate than someone with 5% down. Even after it’s explained to them they can’t see the lender’s side of things. Even Realtors don’t understand it.

First time buyers are still in the market – they get a preferable rate because they usually have only 5% down -- and they tend to be much more educated about the market and mortgages.

Blake Wilson, Halifax, NS
Our market seems to be stable. Clients are looking for house a little earlier this year and Realtors are optimistic. Homes under a half million are doing well; over that, there are fewer buyers. New construction properties are selling well.

Mortgage approvals continue to be a challenge, especially among the self-employed and now first time home buyers, given the recent rule change -- affordability has eroded for them.  For example, I had approved a salaried electrician who had saved the 10% down payment for a Purchase Plus mortgage. With the introduction of the new mortgage qualifying rule, he had to now pay out his student loan to qualify.

I am also seeing a lot of confusion at the banks from customer representatives who don’t understand the rules themselves. Banks seem to declining more deals where we can get them approved because we have many options.  For example, I had one client declined by two banks and I had them approved in 24 hours.

This is a great opportunity for brokers.  I am bullish on 2017.

Tuesday, January 24, 2017

Buying homes in the millennial age

Late last Fall, Mortgage Professionals Canada (MPC) polled 2000 Canadians -- 540 were millennials (18-34-year-olds) -- across the country to get their feedback about the mortgage industry, mortgage brokers and the housing market in general.

Not surprisingly, millennials see the housing market quite differently than their parents and approach home ownership from the view of generating income.

Overall, four-in-ten agree that real estate is a good long-term investment and classify a mortgage as “good debt”.

Thirty-four per cent of First Time Home Buyers think that generating income from the property is important and 21% plan to rent out a part of their home. New homebuyers who renovated did so to add a rental space.

Now considered the “new normal” generating income from a property is more important these days to young people, whether as a direct investment or to help pay off their mortgage by renting out a portion of their own home.

Where does the down payment come from?

The rising costs of home ownership has been a barrier for many millennial home buyers who are challenged to come up with the down payment. However, their strategies are not unusual and are similar to the ways the boomer generation came up with their down payments. Here are the top three sources:

1. Personal savings (60%)
2. Gift from parents or other family members (19%)
3. RRSP withdrawal (12%)

However, in today’s market, it’s more like a race -- save for a down payment, then try to buy something before prices are unreachable. 

Importance of home ownership

A 2016 poll by CIBC found that home ownerships is important to young buyers, like most Canadians. According to the poll,  85% view home ownership as a priority.
More good news – millennials are well-prepared for home ownership but were a bit surprised that costs were slightly more than they expected. 

Who to call for a mortgage?

So, who do millennials call when they want a mortgage, mortgage broker or bank? Well, they’re almost equal-- 33% use their usual bank and 29% get a referral from family and friends as well as Realtors for a mortgage professional. Here are the top five reasons millennials like working with a mortgage broker:

1. To get the best rate
2. To get multiple quotes
3. To help with the paperwork
4. To get help with the process
5. Better customer service

Overall satisfaction with working with a mortgage broker is higher than those who worked with a bank – 78% compared to 69%.

While it’s true that mortgage broker share is trending upwards, there are still some challenges for the industry. The main challenge is broker awareness – millennials don’t seem to know how brokers can help them. 

However, once a home buyer works with a broker they tend to use that same broker again, if the broker continues to stay in contact. Seventy-seven per cent of 18-34-year-olds would like to contacted after the deal is finalized. That contact can be via newsletters, periodic updates about the mortgage industry, in-person meetings and/or phone calls.

Help for first time home buyers

Affordability is the key for millennials and in Ontario and BC they are getting a bit of help. The Ontario government is doubling the rebate on the land transfer tax for first-time homebuyers to $4,000.  

The Ontario Real Estate Association said the increased rebates of the land transfer tax will help more young families achieve their dreams of home ownership.

In BC, first-time homebuyers have access to an interest-free loan from the B.C. government. This new provincially-backed loan program matches the amount a first-time buyer has saved for a down payment -- up to $37,500, or five per cent of the home’s purchase price.

Bottom line: There is continued optimism about the housing market.