Non-traditional lenders are becoming a major force in BC’s mortgage market
More BC homebuyers are turning to mortgage brokers and alternative lenders, a shift that’s reshaping the province’s mortgage market.
Once seen as a last resort for borrowers with credit challenges or self-employment income, non-bank lenders are now attracting a wider range of buyers, including those with strong financial profiles.
With tighter mortgage qualification rules and rising borrowing costs, up to half of homebuyers in Canada now rely on mortgage brokers, according to Canada Mortgage and Housing Corporation (CMHC). That’s an increase from 43% in 2023 to 48% in 2024, as more buyers seek financing options beyond the big banks.
At the same time, the amount of residential mortgage debt held by non-bank lenders has surged. Statistics Canada reports a 19% jump in outstanding non-bank residential mortgages, growing from $338 billion in Q3 2020 to $401 billion in Q3 2024.
While banks still dominate the mortgage market, more borrowers are turning to brokers to shop for better deals and navigate complex lending rules.
"More people are feeling that they want to shop around, they want better advice, better guidance, a better client experience," said Rebecca Casey, president of the Canadian Mortgage Brokers Association – British Columbia (CMBA-BC).
Unlike banks, which offer only their own mortgage products, brokers can access multiple lenders, including alternative banks, credit unions, and private lenders. They also help clients navigate stress test requirements, prepayment penalties, and tax exemptions, giving borrowers a broader picture of their financing options.
Not just for high-risk borrowers
In the past, alternative lenders were mostly used by borrowers with credit issues, self-employment income, or unconventional financial situations. That’s changing as more prime borrowers—those with steady incomes and large down payments—explore non-bank lending options.
"The alternative space has definitely grown over the years," Eddy Cocciollo, president of Dominion Lending Centres and DLCG Mortgage Group, told local publication The Sqaumish Chief.
Tighter mortgage rules and rising home prices mean more buyers struggle to qualify under traditional bank lending criteria. Cocciollo expects the trend toward alternative lenders to continue as borrowers look for more flexible financing solutions.
“Qualification is not getting any easier. I think Canadians are becoming more stretched,” he added.
Alternative mortgage products generally come with higher interest rates and fewer incentives, but they can offer strategic advantages for certain buyers.
For example, business owners who pay themselves a lower personal salary may struggle to qualify for a traditional mortgage. Instead of increasing their taxable income, an alternative mortgage might allow them to borrow more while paying less in income taxes.
"The increased interest rate is actually cheaper than the personal income taxes they would have to pay to qualify," said Casey.
Alternative lenders also cater to buyers who need short-term financing. For example, when a homeowner buys a new property before selling their existing home, alternative lenders can step in to bridge the financing gap and prevent default or legal issues.
“Mortgage-holders in our products tend to be between 18 and 24 months in length of time that they are using our products,” said Dean Koeller, board chair of the Canadian Alternative Mortgage Lenders Association (CAMLA).
Unlike banks, most alternative lenders don’t have government-backed mortgage insurance. That means they set rates based on borrower risk, but the rate gap between banks and alternative lenders has narrowed over the last decade. Today, alternative mortgage rates are typically 100 to 300 basis points higher than bank rates, depending on the borrower’s profile.
Reforms on the way
As alternative lenders gain market share, regulators are working to update BC’s mortgage rules.
The Mortgage Services Act (MSA), passed in November 2022, will soon replace the outdated Mortgage Brokers Act. The new law will introduce stricter licensing requirements and a new disciplinary framework for mortgage professionals.
According to the BC Financial Services Authority (BCFSA), BC currently has 5,830 licensed mortgage professionals and 1,322 brokerages. Once the new rules take effect, mortgage professionals will operate under a structure similar to real estate agents, where brokers work under a licensed brokerage.
The Ministry of Finance is still developing the specific regulations, but once implemented, the new framework aims to increase transparency and consumer protection in the mortgage industry.
Read more: Is Canada's alt-lending space set to grow in 2025?
While alternative lending provides more financing options, it also comes with potential risks that borrowers need to be aware of.
Mortgage brokers typically earn a commission from lenders, but in cases where commissions are lower, some may charge additional fees to borrowers.
The Business Practices and Consumer Protection Act prohibits upfront fees in BC, meaning any broker fees must be deducted from the mortgage advance at funding. However, some borrowers have reported confusion over fees and commission structures, leading to consumer complaints, according to Raheel Humayun, director of investigations at BCFSA.
"A lack of transparency regarding fees, compensation structures, and mortgage terms are among the common issues we address," Humayun said.
Another concern is the potential for conflicts of interest, where brokers may steer borrowers toward lenders they have undisclosed relationships with. Current B.C. regulations require brokers to fully disclose their commissions and any financial ties to specific lenders.
At the extreme end, some worry about predatory lending, particularly from unlicensed lenders. As of January 1, 2024, the government lowered the maximum legal interest rate from 48% to 35% annually, aiming to crack down on high-risk lending practices.
“I think that’s why you work with a mortgage broker, to avoid any sort of hazardous or malicious type of financing,” said Casey.
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