Skip to main content

Eight months of sharply rising interest rates have strained the finances of recent home buyers, but not their confidence that buying property was the right decision.

An informal survey of 653 people who bought their first homes in recent years found several pain points. Almost one in three said they’re feeling financial pain but managing, just more than 10 per cent described themselves as struggling and 3.4 per cent said they may have to sell. One-third are worried or afraid of the effect that higher mortgage costs will have on their long-term financial health.

Has a young generation of buyers been soured on home ownership? Not so much. Only 28.5 per cent of respondents described themselves as house poor, a vaguely defined but familiar term that suggests you bought more house than you can truly afford. Even as house prices fall, almost 40 per cent of survey participants said they are quite confident that buying their home was a smart financial move, and 33 per cent are pretty confident.

The survey was launched a few weeks ago in the twice-weekly Carrick on Money e-mail newsletter, which you can subscribe to here. People who bought first homes from 2018 through 2022 were asked to answer a series of questions about how rising mortgage rates have affected their finances and their feelings about real estate.

High levels of inflation have resulted in repeated waves of interest-rate increases since March. Rates have gone up on loans and lines of credit, but it’s mortgages where the effect is felt most because the cost of houses is so high.

Three-quarters of survey participants are paring back on spending because of mortgage costs. The most often mentioned cost cuts are restaurant meals and entertainment, travel and spending on clothes, but saving and investing were also mentioned a lot.

Homeowners with upcoming mortgage renewals need to start preparing for the financial hit now

These numbers are where the pain of young homeowners becomes a broader concern. Lower levels of consumer spending slow economic growth at a time when recession risk is rising, and low levels of savings raise questions about how prepared young people are to weather financial emergencies without incurring more debt and save for retirement.

Close to 78 per cent of survey respondents were from Ontario and British Columbia, and 88 per cent lived in urban centres. Almost 46 per cent had variable-rate mortgages, 51.4 per cent had a fixed rate and the rest had either a blended loan or no mortgage at all.

These young buyers of the past few years owe a lot. Close to 19 per cent have a mortgage balance of more than $800,000, while another 33 per cent owe between $500,000 and $800,000.

This helps explains why payments have risen so much for people who have renewed or had the payment on their variable-rate mortgage adjusted higher. Fifty-two per cent of this group said their payments have gone up by more than $500 a month, which is a huge amount of extra cash to find in households with children. Another 22 per cent have had their payments go up by $300 to $500.

In 2020 and 2021, parents helped their adult children with money for house down payments. A new facet of parental help is emerging as a result of the big increase in monthly mortgage expenses. One in four survey participants said parents are helping them cover these extra costs. The most common types of assistance: cash, money to cover mortgage payments, money to pay down the mortgage principal and help with child care.

Asked who’s to blame for the surge in mortgage rates, 45 per cent took the refreshingly adult view that no one bears responsibility because higher rates were always a risk. The Bank of Canada was blamed by 22 per cent, the federal government by 18 per cent and 5.5 per cent blamed lenders for not being more open about the risk of rising rates.

The most telling question in the survey might be the one asking about attitudes toward home ownership in 2022. Just 7.7 per cent regret buying. Almost one-quarter are loving it, 36.4 per cent said owning a home is stressful but worth it and the rest philosophically said it is what it is. Stay tuned to this column to see if these attitudes hold up through the grinding months to come.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.