Big banks struggle to compete in rural markets where flexibility and local expertise matter most
Canada’s mortgage market is seeing a growing divide between urban and rural first-time home buyers. While urban buyers largely stick with the country’s biggest banks, more rural buyers are choosing non-bank lenders, such as credit unions, smaller banks, or monoline lenders.
Data from Teranet, a real estate intelligence platform, showed that mortgage preferences of Ontario buyers were similar: 65% of urban buyers and 62% of rural buyers went with one of the Big Five banks in 2011. But since then, a noticeable gap has opened up.
By 2023, just 48% of small-town and rural buyers went with a Big Five lender, before rebounding slightly to 55% in the first half of 2024.
Meanwhile, urban buyers – those in cities like Toronto, Ottawa, and London – continue to favour Canada’s largest banks, with 60% to 65% consistently opting for a Big Five mortgage. This number jumped to 71% in early 2024.
Experts say rural buyers face different challenges than their urban counterparts, and non-bank lenders are often better equipped to handle those needs.
For one, large banks tend to “shy away” from mortgages on harder-to-sell rural properties, according to David McVay, a banking industry consultant.
“Rural properties are more difficult to underwrite than urban, because their marketability is much less,” McVay told The Globe & Mail. “You can sell a property in an urban market within days sometimes, whereas rural properties can take quite some time because there’s not the turnover or demand.”
Flexibility is key
Flexibility is another major reason rural buyers look beyond big banks. While urban buyers often have no trouble meeting the strict lending criteria of Canada’s largest banks, rural buyers sometimes need more room to qualify – and that’s where credit unions and non-bank lenders step in.
“If you need more debt ratio flexibility to qualify, or you want a better loan-to-value, you might not be able to get that from a big bank,” said Robert McLister, mortgage strategist and interest rate analyst. “You might need to use a more specialized lender. And in that case, for the little extra you pay on the rate, you’ll get potentially a lot more flexibility.”
Credit unions, in particular, are known for working with rural buyers and understanding the local markets better than big banks.
The mortgage insurance factor
Another key reason for the divide is mortgage insurance, which can make non-bank lenders more competitive in rural areas where home prices are lower.
In cities, where properties often cost over $1 million, buyers don’t qualify for mortgage insurance, which limits options for non-bank lenders. But in smaller towns and rural areas, where homes are typically cheaper, buyers are often eligible for default-insured rates.
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“The reality is… monoline lenders can’t compete in the uninsured mortgage space,” said David Larock, a Toronto-based mortgage broker. “That’s restricting options for people buying the most expensive properties and taking on the largest mortgages.”
Local presence matters
Convenience and familiarity also play a role. In smaller communities, big bank branches are less common, while credit unions often have a stronger local presence. This can make credit unions a natural choice for first-time buyers.
“Bank branches are generally less available in smaller communities, while credit unions are more common,” said Alex Leduc, CEO of online mortgage brokerage Perch.
For some rural buyers, Canada’s big banks still offer the best deal. Richard and Hayley Clark, who recently moved from Toronto to Portuguese Cove, a rural community near Halifax, worked with a mortgage broker to secure their mortgage.
“We had good credit and enough money saved for a down payment,” Richard Clark said. Their broker found their best offer was with a Big Five bank, on the condition they set up a bank account to make their payments.
While Canada’s big banks still dominate the mortgage market with a 77% share, according to McVay and Associates, credit unions and other lenders hold a combined 23%, much of which comes from smaller and rural communities.
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