Brokers have crucial opportunity to guide clients through turbulence, says top mortgage exec
It’s no secret that Canada’s mortgage market is bracing for a wave of renewals in the next two years, with the country’s top bank regulator recently flagging the risks posed to the financial system by that coming trend.
Last month, the Office of the Superintendent of Financial Institutions (OSFI) raised the prospect of persistent high interest rates contributing to a significant payment shock for borrowers upon renewal.
Borrowers with variable-rate mortgages whose payments are fixed, especially those already in negative amortization, are of “specific concern” to the regulator.
There’s undoubtedly some sticker shock on the way for many Canadian borrowers upon renewal, although a leading Greater Toronto Area (GTA)-based mortgage executive is calling for market watchers to view the current landscape in context, with Canada Mortgage and Housing Corporation (CMHC) estimating the 25-year average for a five-year fixed mortgage rate at 5.21%.
Sung Lee (pictured top), managing partner at the Swivel Mortgage brokerage, told Canadian Mortgage Professional that while many observers have “anchored” their views in the ultra-low mortgages rates that have prevailed in recent years, those historical averages suggested the rate environment of today was far from unprecedented.
“What that indicates is that rates aren’t terrible from a historical perspective,” he said. “Rather, we need to recalibrate [borrower] expectations – mortgage rates in the 4-5% range will be the new normal for the foreseeable future.”
Justin Prasad from BlueShore Financial notes that even with modest discounts on variable rates, they currently lack appeal compared to short-term or five-year fixed-rate optionshttps://t.co/rNVV1BFQX9
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 20, 2024
It goes without saying that securing the best possible rate for clients has always been a key consideration for mortgage brokers in any environment. Still, the coming turbulence means the onus is also on brokers to provide as comprehensive a slate of services as possible for borrowers to guide them through that economic uncertainty, according to Lee.
“One thing is being able to provide clients with a competitive rate or a really good rate,” he said. “But I think in this environment, clients are looking for much more than that. They’re looking for someone who can guide them, dig deep into helping them create a proper budget, see where they can find some savings to offset some of those increased payments that everybody’s seeing.”
Tiny percentage of borrowers significantly negotiating new rate, survey shows
In its latest State of the Housing Market report, Mortgage Professionals Canada (MPC) found that 44% of mortgage holders accepted the initial rate offered by their lender during their last renewal, a jump of 3% from last year, with a mere 8% indicating that they had “significantly” negotiated their new rate.
That can be for a number of reasons, according to Lee – not least a feeling of being “handcuffed”, as those borrowers may not requalify with a new lender if they’ve seen their overall debt increase while their income has remained somewhat stagnant.
Lee said brokers again have a responsibility in those instances to make sure their marketing is tailored to individuals in similar situations, making sure those borrowers are getting a second opinion on whether the renewal offer is competitive.
“A good broker will tell you if it’s a good deal,” he said. “If not, we’ll find something better that they can qualify for. So I would say nonetheless, you always want to make sure, from a client perspective, that you’re getting a second opinion and from a broker perspective that you’re actively reaching out to individuals to make sure that they know what the best option is, so they’re not leaving $1,000 on the table.”
Which lending segments are thriving at present?
Mounting affordability challenges in recent years amid that higher-rate environment have seen plenty of borrowers left with little option but to gravitate towards the alternative lending space, having been priced out of more traditional lending options.
Lee said the mortgage spectrum had been represented across Swivel’s client base of late, with around 50% on the A side, approximately 30% on the B side, and around 20% in the private mortgage space.
“There is a mix we’re seeing,” he said, “[including] people who have previously qualified for A financing, having extended ratios and having to shift over to a B lender with the hopes that they’ll be able to get them back as rates continue to decrease.”
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