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Parents helping kids with mortgage down payments

Parents to the Rescue: Average Size of Gifted Down Payments Rises to $82,000

As home prices have risen sharply in recent years, so too has the amount of down payment assistance parents are willing to give their kids.

For those parents who choose to assist their adult kids with the purchase of their home, the average amount of that financial gift has risen to $82,000, according to a research note released today by CIBC economist Benjamin Tal.

That amounts to an estimated $10 billion in down payment assistance from parents over the past year, accounting for 10% of total down payments, Tal says.

While the individual gift amount sounds large—particularly to homebuyers who aren’t fortunate to receive down payment help from their family—the amount has risen almost exactly in tandem with home prices over the years.

From 2015 to 2021, the size of the average gifted down payment rose at an annual pace of 9.7% per year (from $52,000), two percentage points faster than home price inflation, Tal noted.

And while the size of down payment gifts for first-time buyers has risen, the share of parents willing or able to offer that assistance hasn’t much changed, with under 30% of first-time buyers saying they received help.

“This is not a new phenomenon,” Tal said, adding the share was closer to 20% in 2015 and has gradually risen since then. “Interestingly, the share of first-time homebuyers receiving help did not rise during the pandemic.”

The assumption may be that only first-time buyers tend to receive down payment gifts from their families, but the reality is that existing homeowners are also receiving help as they move up the property ladder, according to the data. Just under 9% of so-called “mover-uppers” received parental help with their down payment, but the total amount of assistance is substantially higher for them at $128,000 as of September 2021.

Where is the money coming from?

In his report, Tal poses the question that’s on many of our minds: “How do parents come up with this money?”

Many will assume parents are taking the money from their own home equity line of credit (HELOC), which has presumably skyrocketed in value over the last couple of years. But that’s not quite the case, Tal explains.

“Based on Equifax information, we estimate that only 5.5% of gifting parents use debt to finance gifting…Therefore, it seems that a large portion of the gifting comes from parents’ savings, which of course grew notably during the pandemic—allowing for the increases in the size of the average gift,” he wrote. “Given the trend and the size of gifting, it is clear that this phenomenon is becoming an important factor impacting housing demand and therefore home prices in Canada.”

During a speech at Mortgage Professionals Canada’s Virtual Mortgage Symposium earlier this month, Tal said down payment gifts are a “major force” impacting the mortgage industry.

“Those parents are encouraging their kids to get into the market and take advantage of this window of opportunity of low interest rates,” he said. “So, there was this sense of urgency to get into the market, and that’s exactly what we have seen over the past year and a half.”

He added that the number of parents co-signing for mortgages has also increased 45% compared to before the pandemic.

Additional findings

The report revealed a number of other noteworthy findings:

  • Two-thirds: The percentage of first-time buyers who received a gift and said that gift was the primary source of their down payment.
    • $104,000: The average size of the gift when it’s the primary source of the down payment for first-time buyers.
    • $157,000: The average size of the gift when it’s the primary source of the down payment for “mover-uppers.”
  • In Toronto:
    • First-time buyers received an average of $130,000 from family members as of Q3 2021.
    • Mover-uppers received an average gift of nearly $200,000.
  • In Vancouver:
    • First-time buyers received on average gift of $180,000 from parents
    • Mover-uppers received an average gift of nearly $340,000
  • Down payment gifting is most common in Ontario: over 30% of first-time buyers report receiving assistance.
  • Gifting is least common in Prince Edward Island: under 15% of first-time buyers there received a gift.