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Why Tenancy In Common Will Be The New Norm in Canada's Major Markets
Purchasing a home in Canada is more challenging (and more complicated) than it has ever been. For first-timers, such new considerations as the stress test and changes to mortgage rules are as intimidating as spiralling price appreciation and increasing interest rates. The 30-year old-young professional earning $60,000/annum is simply running out of options to become a homeowner.
Being in my mid-twenties, I can certainly relate to the struggles of the first time homebuyer demographic. Growing up just outside of Toronto, moving into the downtown core was always my goal, but when the time came to make the move, I knew I couldn’t do it on my own. What is the eager millennial to do?
First time homebuyers are often in the position of having to come up with creative means of achieving financing. Asking for help is the new norm, however first time home buyers are simply not doing this in an effective way.
Getting a parental co-signor – a commonly proffered workaround -- is nowhere near as easy as it sounds. Millennials’ parents may well have their own debt obligations, often with large unsecured debts and of course their own ongoing mortgage payments. A financial gift towards a down payment is a great answer to those with the means, but whatever the parents’ good intentions may be, more often than not their financial resources are tied up in the equity of their homes. Refinancing could be an option, but the new rule changes make qualifying a less certain prospect. The millennial eyeing homeownership could be excused for feeling that there’s no light at the end of the tunnel.
This is where we come in. Mortgage professionals’ remit is already more diverse than it once was; we now need to be mortgage coaches, (some days even mortgage therapists) for our clients. As part of this process of better addressing client needs we must become more adept at positioning co-signors, financial gifts, and tenancy in common. The last concept -- tenancy in common; that is the purchasing of a home with a friend, partner or relative -- will become the new norm in the major urban markets of Toronto and Vancouver – and I know whereof I speak.
I did it, and more home purchases will soon follow my example. Apart from the obvious halving of the amount I had to come up with for a deposit, the benefits of going into such a major purchase with a partner diminished every fear I once had about attempting to enter the housing market. For example, the much-despised Toronto land-transfer tax and those pesky lawyer fees? Cut in half. In fact, all housing-related expenses including condo fees, mortgage payments, property taxes and insurance now come with a 50% reduction in price. The benefits of halving what smaller fees have to be paid for line items such as internet, cable, Netflix, hydro begin to compound; joint expenses as small as dish soap are also cut in half.
Being a busy professional with a demanding job, I am lucky to have as much as two hours of free time – or as my roommate eloquently terms it, “sitting time” – on any given night. It is comforting to know of the home sitting vacant for the majority of the day, that whatever price tag could be attributed to that notional vacancy is reduced by 50%.
However a smooth tenancy in common demands the co-owners take precautions early on: buyers should seek out legal advice in order to both make out their wills and create ‘a shotgun clause’ in the paperwork to protect the asset and the relationship that exists between the individuals. A contract between the two parties that stipulates a potential time frame to hold the asset is also recommended. The ‘shotgun clause’ sets parameters in the event one party should need or want to sell off their share of the property.
Given that the price of the average condo is set to reach $600,000 in Toronto and $700,000 in Vancouver, and thus move beyond the reach of anyone earning less than $100,000, a flexibility of approach – for example the pooling of down payment and income resources as in tenancy in common arrangements -- is now required.
The shift in ideology for tenancy in common to become more commonplace is underway, and the sooner young people regarding the price of real estate with dismay realize this, the sooner they will find themselves able to buy property and – perhaps even better – the lower their total expenditures will become. Young people can partner up, or get comfortable at their parents’ house.