There are many economists and analysts in Canada who think that we’re currently in a housing bubble. And there are some, such as Bank of Canada Governor Mark Carney, that won’t even utter the word. But while housing bubbles usually don’t spell good news for anyone, there are some that are profiting from it. And those are the alternative lenders.
Alternative lenders are lenders that aren’t part of the Big Six banks here in Canada. And because they aren’t part of the Big Six, they typically have a little more wiggle room when it comes to their mortgage and home refinancing services. While Ottawa has made some drastic chages, such as stricter rules on HELOCs, new rules for those who are self-employed, alternative lenders aren’t bound by the same rules. And so, as more people fear a housing bubble, the more these lenders will profit. Another reason why alternative lenders are coming out on top is because they’re still working with Toronto mortgage brokers – something many of the banks have stopped doing in order to hold onto as much of their profit as they can.
“They are filling the void left by the Big Six banks,” said Shubha Khan, analyst at National Bank Financial. “[They have] reduced lending to self-employed borrowers and lending through the mortgage broker channel due to reduced availability of mortgage insurance from CMHC and increased regulatory scrutiny from OSFI, among other things.”
Equitable Trust is just one example of this. This tier two bank wanted to be able to provide mortgages for all of those in Canada and recently, they just expanded into Nova Scotia, where there’s currently a large need of single-family residential mortgages. And according to Stephen Boland, analyst at GMP Securities, the trend is only going to continue.
Mr. Boland agrees that tighter underwriting rules are the reason why alternative lenders are becoming so profitable in Canada. And, he says, as long as the banks have strict rules on income levels for their borrowers, and continue to have such tight credit policies, this is a trend that’s going to continue.
What do you think? When it’s time to renew or refinance your mortgage, will you feel more comfortable visiting one of the major banks in Canada, or would you choose an alternative lender?
