Should clients get family loans to make mortgage down payments?

Nearly one in five first-time home buyers (18%) received help with a down payment from a family member, according to the 2017 mortgage consumer survey conducted by the federal housing agency, released Tuesday.

While family members offering support seems helpful, the Canada Mortgage and Housing Corp. found buyers who received this kind of financial aid were less likely to feel comfortable about their current level of mortgage debt. Plus, these buyers were less confident about knowing where to turn in the event that they run into financial trouble.

Read: CMHC CEO dismisses risk of mortgage fraud, but stresses housing troubles

“Similarly, they were less likely to have other assets to supplement their needs should they run into financial trouble.,” says CMHC, given they likely didn’t have assets to make the down payment in the first place.

This was the first time CMHC included these questions as part of its annual mortgage consumer survey, which was completed online in March and included 3,002 recent mortgage consumers.

Read: What should your clients do with their ‘mortgage gap’ money?

These results come amid concerns that record household debt is a key risk for the Canadian economy. The federal government has tightened mortgage lending rules several times in recent years, including expanding stress tests on mortgages.

Read: Here’s how people fund home purchases

The poll found that just over half of buyers were aware of the latest mortgage qualification changes and about one in five (19%) noted that the latest changes affected their purchase decision.

Additional highlights:

• About four in ten buyers received a recommendation to use a specific lender (38%), and 35% a recommendation to use a specific broker. These recommendations are most likely to come from a real estate agent or family member.
• Fifty-five percent of buyers received advice on the amount of down payment to put down. Among those, 24% received advice to put down less, and 69% received advice to put down more for a variety of reasons, such a minimizing overall interest paid and avoiding mortgage loan insurance.
• Overall, 40% of buyers mentioned having concerns during the home buying process (compared to 43% in 2016). Among this group, the uncertainty came mostly from unforeseen costs, noted by 57% of buyers, followed by the fear of paying too much for their home, and living with post home buying costs (both at 51%).
• Thirty-two percent of all buyers incurred unexpected expenses during the home buying process, of which immediate repairs were the most common unexpected costs identified.
• Thirty percent of buyers reported making repairs or improvements costing over $5,000 since purchasing their current home, and 58% noted they are likely to make repairs or improvements over $5,000 in the next 5 years.
• The survey also notes more than three-quarters of mortgage consumers polled research online, and that almost half say they would feel comfortable using more technology to arrange their next mortgage transaction. Also, the use of social media among mortgage consumers has increased.

Read the full survey.

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