According to a Decima Research survey conducted for BMO Bank of Montreal, 16 per cent of recent first time homebuyers find their home payments are difficult to manage, or that they consider themselves to be ‘house poor’. 

The survey also found that 77 per cent of recent house hunters did not seek any financial advice from a financial professional such as banker, financial adviser, or a mortgage broker.   

“What’s surprising about these findings is the number of people who don’t seek financial advice from experts on the biggest investment they’ll ever make, and that could be a big mistake,” said Maria Racanelli, Vice President, Personal Banking, BMO Bank of Montreal.  “While securing a great mortgage rate is important, developing a realistic plan on how to manage both your regular payments and unexpected expenses often makes a huge difference in maintaining a comfort level about your overall finances.”  

With the increasingly competitive real estate market of the past several years marked by increased home prices, multiple offers, and real estate bidding wars, a homebuyer now has to work harder and pay more for what they want, particularly in some of the higher cost city centres across the country.  For example, recent homebuyers in cities like Vancouver (15 per cent of respondents), Toronto (14 per cent) and Calgary (12 per cent) are significantly more likely than those in Halifax (6 per cent) to face difficulties in handling their home mortgage payments.

The answer to this dilemma can be surprisingly simple.  Those recent first time homebuyers who obtained financial advice in advance of the purchase are more likely to agree that their home payments are a small and manageable portion of their household income than those who did not obtain financial advice (86 per cent vs. 74 per cent respectively).  Not surprisingly, those who took advantage of the First Time Homebuyer’s Plan are more likely to agree that their home payments are a small and manageable portion than those who did not take advantage of the plan (85 per cent vs. 76 per cent respectively).

To protect first time buyers from overextending themselves, Ms. Racanelli offers the following tips:

• Plan carefully.  Start by getting a clear understanding of your monthly cash flows. List everything from mortgage payments, car payments, credit card payments to the unexpected cost of home repair.   Being realistic about your spending patterns is a great first step in determining how large a mortgage you should be taking on.
• Next, give some thought to how your needs may change over the next five years. For example, you may be planning a family and need to assess the impact a reduction in household income will have on your ability to pay your mortgage while you or your partner is on paternal leave.
• Finally, work with a banker or financial advisor to put together a mortgage strategy.  The goal is to develop a plan for paying off the mortgage in the fastest and least costly manner possible. Whatever your individual needs are, your banker will be able to personalize a plan and assist you in navigating the many options that are available to homebuyers today.

Other Survey Highlights  

Taxes, Closing Fees and Renovations are top of mind during the Home Purchase

• BMO’s study found that the three primary areas of concern other than house price/financing for buyers were: annual property taxes at 37 per cent (rising to 47 per cent for those in Montreal), closing costs (31 per cent) and renovation costs (30 per cent). 

New Buyers are taking advantage of The First Time Home Buyers Plan

• The First Time Homebuyer’s Plan which allows new home buyers to tap into their RRSP was clearly a popular option for new market entrants, with 45 per cent of recent first time buyers reporting they had taken advantage of this program.

Banks seen as offering the best mortgage rate

• 44 per cent of recent home buyers felt that they could obtain the best mortgage rate from their primary bank, 26 per cent felt that they could receive the best rate through a mortgage broker, while 8 per cent felt they could go get the best rate by going to a different (non primary) bank.

The survey was conducted by Decima Research among 1015 Canadians recent homeowners (who purchased current home within the past 10 years) in five major cities (Vancouver, Calgary, Toronto, Montreal, and Halifax) and has a margin or error of /- 3.1 per cent 19 times out of 20.

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