Greater complexity often at play due to recent trends, says company president
As Canada’s mortgage market has changed gears over the past year and with many lenders tightening their qualification criteria, an increasing number of borrowers are turning to the alternative space – and applications are becoming more complex as a result.
While conventional five-year fixed or variable products may have dominated in recent years, the new environment is seeing plenty of borrowers opt for shorter-term mortgages as they weigh up the current economic landscape with alternative lending seeing a spike in demand, according to the head of a prominent brokerage.
“We’re seeing a lot more alternative, private, and MIC lending,” Benjamin Sammut, president and broker of record at Rover Financial, told Canadian Mortgage Professional.
“We’re seeing more A clients turning to the B side, [and] we’re seeing more short-term lending because again, people don’t know what their outlook should be. So they’re taking one- to three-year products, rather than the standard five-year fixed or variable.”
Sammut noted that the cost-of-living crisis and economic unrest were also affecting income declaration, with Canadians taking on different forms of income and many facing the possibility of a job loss down the line.
“They’ve got more job precariousness,” he said. “So we’re seeing more layoffs and we’re having to go in and save the day temporarily because you no longer have two salaried people in a family – or rather than being one full-time position, they’ve taken on three part-time positions.
“So the actual nature of people’s livelihoods is now becoming more precarious, while they’re simultaneously trying to put it into an ever-decreasing box for the lender.”
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Lenders, MICs stepping up to the plate to help borrowers
Amid challenging circumstances for many borrowers, with rates rising and monthly payments spiking in many cases, Sammut said the flexibility shown by many lenders had proven a boost in helping them clear those hurdles.
“The MICs [mortgage investment corporations] we’re working with are proving to be more cooperative with clients while simultaneously maintaining healthy portfolios,” he said. “So we’ve seen some creative tools come out that you don’t see as often in the A space.
“And they’re inviting that mutual understanding, that cooperative conversation, that ongoing dialogue. It’s that sort of ‘we’ll weather the storm together’ mentality that we’ve seen a lot in the MIC space.”
Indeed, the narrowing of the gap between conventional and alternative lending in recent times is set to have a profound impact on the mortgage market, Sammut said, with a possible permanent realignment coming ever closer.
“One of the benefits that we’re going to see coming out of this is that a lot of the A space is going to have to adopt the methodologies and the risk tolerance and the programs of the B space or the alternative space, whether that’s in fund formation and capital raising or risk appetite, and vice versa,” he said.
“A lot of the alternative lenders who have historically been very small, independently run funds or organizations are now going to have to think a lot more corporately. We’re going to see a blend, and the spectrum of A to private is going to start to shrink.”
What’s in store for the rest of the year?
As for how the market will look for the remainder of the year? Sammut said property prices had already likely hit their floor, with lack of supply persisting and demand ticking along – although he said activity would probably be dominated by people making lateral moves or downsizing.
“I think purchases are going to continue to be way down year over year for any broker or any lender,” he said. “I’d argue that unless people come out with more creative products, refinances are also going to be somewhat stunted.
“So realistically, we’re going to see switches, we’re going to see renewals, we’re going to see people moving from one lender to the other. I would argue that the majority of people are going to be in a holding pattern at least until the end of this year, potentially into 2024.”
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