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 home buyers 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 ownership 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 home buyers 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 home buyers 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.