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Mortgage Hurdles Are Very Real for Most Renters

Dec. 17, 2019
3 mins
Young family walking on sidewalk in residential neighbourhood after a day of downtown shopping

Renting is a perfectly acceptable and viable option for millions of Canadians. Yet, four out of five renters say they plan to purchase a home in the next five years, finds a new survey from Zolo.

Another 11% plan to buy within six to 10 years.

That doesn’t leave many lifelong renters.

Nevertheless, obstacles stand in the way for most wanting to make the leap from tenant to owner. That could keep many renting for far longer than they thought.

“Millennials, who are often talked about being stuck between a rock and a hard place with incomes not rising as fast as housing prices, still largely intend to become homeowners,” says Romana King, director of content for Zolo. “(But) what we’re seeing is a later entry into homeownership.”

For young renters with aspirations of becoming homeowners, here are just some of the roadblocks before them.

Down Payment Doldrums

Saving up the required down payment is still one of the biggest obstacles for renters wanting to purchase a house. One third (34%) of respondents said they needed a larger down payment to realize their homebuying dream.

For many, the task of socking away tens of thousands of dollars is a monumental task. Recent stats show it now takes millennials an average of 13 years to save up a 20% down payment, which is the minimum needed to avoid default insurance. That’s even higher in Toronto and Vancouver, of course. In those cities, it takes young prospective buyers up to 21 and 29 years, respectively.

That same study found that nearly half (46%) of millennials who did manage to enter the housing market did so with down payment help from their parents.

Mortgage Qualification Challenges

It’s one thing to have money saved up for your home purchase, but you still have to prove you can make the mortgage payments. Fourteen percent of respondents said they aren’t able to buy because they can’t qualify for a mortgage.

Qualifying for a mortgage became more difficult for first-time buyers early last year when the federal government introduced a new mortgage stress test. Those putting down less than 20% need to prove they can handle mortgage payments based on the Bank of Canada’s benchmark rate, which is currently 5.19%. Even those putting down more than 20% need to be qualified at the greater of their contract rate plus 200 bps or the Bank of Canada’s benchmark rate.

The stress test on uninsured mortgages was estimated to have impacted as many as 18% of potential buyers, according to a report from Mortgage Professionals Canada. Of those, it’s estimated that at least 40% were no longer able to qualify for a mortgage at all.

Credit Score in Disrepair

About one in seven renters (14%) say they are in the process of repairing their credit score, which is preventing them from obtaining a mortgage and buying a house.

This isn’t surprising, considering a recent survey found just 67% of Canadians aged 18 to 24 are familiar with their credit score.

If you don’t know what your credit score is to begin with, you’re unlikely to catch reporting errors when they occur. You’re also less likely to embark on improving your score.

The Affordability Conundrum

Another 12% of renters point to a “lack of affordable housing options” as their biggest hurdle to purchasing a home.

It’s no wonder, given that the average home price in Canada is now around $530,000, according to figures released Monday from the Canadian Real Estate Association. That’s an 8.4% price jump from this time last year.

Incomes aren’t growing anywhere near that fast, meaning home prices are quickly outrunning the ability of young renters to afford them.

The federal government unveiled its First-Time Home Buyer Incentive this fall in an effort to help novice buyers struggling to enter the housing market. But thanks to its purchase price cap of $565,000, the program has come under intense criticism. Opponents argue it will do little to help people enter the country’s most unaffordable markets—Toronto and Vancouver.

Steve Huebl

Steve Huebl is the operations manager for and a regular contributor to RATESDOTCA.

At the age of 15, Steve founded a neighbourhood newsletter that eventually grew to a circulation of hundreds and was supported by over a dozen local advertisers. He later honed his writing and editing talents at The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. He also worked for several years as a chief English writer of the McGill University Health Centre’s marketing office. Born and raised in Toronto, he now calls Montreal home. When he’s not writing about mortgages, Steve can be found appreciating nature — typically along the shores of the St. Lawrence.

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