With home prices vastly outpacing incomes over the past two decades, the number of first-time buyers who’ve tapped parents to co-sign mortgages has surged, a new analysis published by the Bank of Canada shows.
And while having parents on board dramatically boosted buyers’ purchasing power, there’s strong evidence that both generations are left at higher risk of getting into financial trouble.
The share of first-time buyers under the age of 50 who co-signed mortgages with a parent jumped to roughly 11 per cent last year from 4 per cent in 2004, according to research by bank economist Shaoteng Li.
In Canada’s most expensive cities, Toronto and Vancouver, the co-signing cohort now accounts for close to 14 per cent of all first-time mortgages, while Montreal experienced the steepest single increase over the two decades among the cities tracked.
Without that support, the bank found, adult children would be far more restricted in what they could afford. Based on data for the fourth quarter of 2022, the maximum attainable mortgage for first-time buyers on their own would have topped out at an average of $458,000. Having a parent’s signature boosted that to $787,000.
Indeed, the researchers found without parental support, nearly three-quarters of buyers would have been shut out from their current mortgage.
There’s a darker flip-side to all this. The more that co-signing borrowers tapped into the additional debt available to them, the more likely they were to eventually become delinquent on credit cards and lines of credit.
“In other words, stretching further to buy a more expensive home appears to be associated with a higher risk of financial stress later on,” wrote Mr. Li, who added co-signing “may represent an emerging vulnerability for the financial system.”
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