First-time homebuyers likely to use new accounts, but majority admit they’re not aware of the advantages
While Canadians’ awareness and interest in First Home Savings Accounts (FHSAs) has advanced since their launch earlier this year, there’s still a long way to go in order to foster understanding of their benefits.
In its 14th Annual Investment Survey, BMO found just over half of Canadians looking to buy a home for the first time (52%) are likely to leverage the FHSA to help save for their home purchase.
The poll also found around one quarter of parents (24%) are likely to use the account to help their children save up for a down payment on their first home.
“Homeownership continues to be an important milestone for many Canadians and their families and using all available tax advantaged accounts like the FHSA makes that a little bit easier,” Nicole Ow, Head, Retail Investments at BMO said in a statement.
Read more: First Home Savings Account - hype or hope for aspiring homeowners?
The FHSA – which can hold different types of investment assets including cash, GICs, ETFs, and mutual funds – incorporates some of the benefits of an RRSP and a TFSA.
FHSA owners can deduct contributions from their taxes; up to $8,000 can be contributed each year, with a lifetime contribution limit of $40,000. Furthermore, earnings that accrue in the account are tax-sheltered.
“Housing affordability is a problem facing many Canadians, and the FHSA is one way Canadians can work toward saving for that down payment to buy their first home,” said Robert Kavcic, senior economist at BMO.
According to a recent analysis by RBC, a median-income Canadian household would need to commit 59.3% of its income to cover costs of homeownership. That ratio rises to 79.6% in Toronto, and a staggering 97.5% in Vancouver.
Affordability challenges in major markets, due in no small part to extreme borrowing costs driven by drastic rate hikes, have sparked a trend of co-ownership of Canadian homes.
A survey by Royal LePage earlier this year found that among those who co-own a home with someone aside from their spouse or significant other, nine tenths (89%) do so with family members, while 7% have pooled resources with their friends.
Read more: Affordability issues driving co-ownership for Canadian homebuyers
“While there are several economic forces working against people saving for their first home, the FHSA is one tool that can help people meet their savings goals and a program people should take note of when putting a plan together,” Kavcic said.
Despite the keen interest in tapping the FHSA for an initial home purchase, BMO found an extreme need for greater education on its benefits, with seven tenths of Canadians (69%) saying they’re not knowledgeable about the benefits of the account.
“For those saving for their first home, Canadians should work with a professional advisor to help them understand the investment strategies available for this account and build a financial plan that will help them stay on-track towards their ultimate goal of home ownership and make real financial progress,” Ow said.
