Does your client need help with home equity?

New housing data indicate the importance of home equity for many Canadians—and the struggle of younger Canadians to acquire it.

In its mortgage and consumer trends report for Q4 2017, the Canada Housing and Mortgage Corporation (CMHC) reveals that the growth rate of debt from home equity line of credit (HELOC) more than doubled when compared to the fourth quarter of 2016—potentially indicating more Canadians are making use of this debt.

Read: Should investors use HELOCs?

Information about HELOCs can be found on the government’s website, including advantages and disadvantages, among other details and tips.

For example, HELOCs often offer lower interest rates than other types of credit, but lenders can take possession of clients’ homes if they miss payments, says Canada.ca.

Read: Home equity loans put clients and economy at risk, says FCAC

The government also reminds that to qualify for a HELOC at a bank, clients must pass a stress test. (Credit unions and other lenders aren’t required to comply with stress tests mandated for federally regulated institutions.)

First-time buyers struggle

The CMHC report also says that the country’s mortgage debt increased at a slower pace in the last quarter of 2017 compared to the year before, likely because of rising rates and decreasing home sales.

Still, it also finds that the number of consumers with a mortgage loan in the fourth quarter reached its highest point in the most recent three-year period.

Young Canadians hoping to become part of that growing number face a challenge when saving for a down payment—especially for homes in certain urban centres.

While two-thirds of young Canadians would like to buy a home within a year, one-third (30%) have less than $10,000 in savings, and 10% have no savings at all, finds a survey from Point2 Homes. (The national average down payment amount is about $25,000.)

Read: Should clients get family loans to make mortgage down payments?

Meeting a savings goal for a down payment within a year is a pipe dream for many.

That’s because prospective homebuyers need between 14 and 35 years to save for a down payment in Canada’s seven most expensive markets: West Vancouver; Vancouver; North Vancouver; Burnaby, B.C.; Oakville, Ont.; Richmond Hill, Ont.; and Richmond, B.C.

Most young Canadians are unaware of the contrast in their expectations versus reality.

For example, while the minimum down payment for a Vancouver home is close to $300,000, says Point2 Homes, 80% of survey respondents believe they need less than $100,000. In Toronto, the average down payment is about $62,000, but 70% estimate they need less than $50,000.

There is good news, however.

In 40 Canadian cities, young Canadians could save for a down payment in 12 months or fewer. These include Timmins, Ont.; Trois-Rivières, Que.; Fredericton, N.B.; Medicine Hat, AB.; and Prince George, B.C.

Read the full Point2 Homes report.

About the survey: Point2 Homes conducted an online survey of more than 9,000 prospective homebuyers. Methodology for home prices can be found online.

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