Sectors set to grow in coming months, executive tells CMP
This article was produced in partnership with Pillar Financial
Fergal McAlinden, of Canadian Mortgage Professional, sat down with Cory Thompson, manager, business development and client relations at Pillar Financial, to discuss why private lending solutions are becoming more popular than ever.
Interest rates plummeted to record lows at the onset of the COVID-19 pandemic – but now they’re back on the rise across Canada, a trend that’s seeing a marked shift towards the private and alternative lending spaces among many borrowers.
Changes last year to stress test guidelines meant that a growing cohort of borrowers now have to qualify at higher rates than before (the higher of 5.25%, or the contract rate plus 2%) and find themselves increasingly turning to lenders that can often offer flexible solutions.
That trend is likely to continue and grow in the coming years, according to Cory Thompson (pictured), manager, business development and client relations at Pillar Financial. He told Canadian Mortgage Professional that the potential for borrowers and brokers alike was clear.
“Higher interest rates mean higher qualifying rates for the stress test, so I think that will definitely factor in on people’s buying power,” he said. “With more restrictions on the bank side of things, it is going to open up the private space a lot more.
“The opportunity to grow in this space is going to be great for business going forward. The A market is changing, and you need to evolve as well, to get to that B space.”
At the end of May, comparison site RATESDOTCA noted that around 6.7% of Canada’s mortgage business so far in 2022 came from private lenders or credit unions, a sizeable increase over last year when those lenders made up just 3.7% of overall mortgage funding.
It’s clear that many Canadians’ eyes have been opened to the viability of private solutions, Thompson said, especially as lenders in that space are often able to offer quick turnarounds that sometimes aren’t available through more traditional lenders.
“What we can provide to our broker partners is quick closing. That’s something we’re seeing more of because of the recent rate increase and the higher stress test qualifying rate,” he explained. “Pillar as a private lender can definitely help out with closes on purchases that may have fallen through the cracks.
“We can step in and fund deals quickly to help out in the purchasing process. It’s a good short-term solution to get the purchase completed and then work towards getting back to the A space.”
That’s proven popular among borrowers, Thompson said, not least because it means they’re now able to close on a home purchase without losing a deposit, something that can happen when they can’t secure funding from their first-choice lender.
As many lenders become more conservative and ramp up their qualification criteria, Pillar is ready to help borrowers who suddenly find themselves refused a mortgage by those organizations, said Thompson – for instance, in the business-for-self (BFS) arena.
Where a borrower may be required to produce two years’ worth of financial documents but only recently became self-employed – Pillar can step in with a solution, Thompson said.
“Maybe they’ve been in business for a year and need a short-term solution,” he explained. “We can definitely help them now until they’re ready to get back to a more traditional lender.”
With a chronic lack of supply still a clear problem in Canada’s housing market, the importance of construction is only set to grow in the coming years – and Pillar is well placed to assist borrowers in need of construction financing, Thompson said, with that representing one of the company’s best-established niche products.
“Construction is still going strong,” he pointed out. “We’re a solution-based lender, and we’re here to help borrowers in any situation. If it’s business-for-self, if it’s a quick close, if it’s a construction, there’s plenty we can do to find the right solution.”
Interest rates are rising, and borrowers are finding it more difficult to qualify for a mortgage – not least because there’s little sign that home prices are falling dramatically across most of Canada’s regional housing markets.
Those factors mean that alternative and private lending solutions for Canadians are only set to grow in popularity, according to Thompson, and he said that brokers should recognize the strong potential for business that exists for them in the space.
“We have to get used to the rates being where they are today and possibly a bit higher in the near future – this is not a short-term issue,” he said. “Alternative funding solutions, like Pillar, are going to be a really big part of brokers’ portfolios for the next one to five years, and there is significant opportunity for the broker community there.”
Cory Thompson is manager, business development and client relations at Pillar Financial, an alternative mortgage lender in Canada.
