Challenges and opportunities lie ahead
Tightened lending criteria in the conventional space in recent years has opened a growing number of borrowers’ eyes to private lending – and that trend is likely to bring further success to some private lenders moving into 2025, according to an executive in the private arena.
Jayson Zilkie (pictured), vice president of business development at the Western Canada-based Shelter Lending, told Canadian Mortgage Professional that the continuing caution of mainstream lenders had helped contribute to an “incredibly strong” year for his company in 2024.
The growing number of high-quality borrowers in the space, he said, had improved the risk outlook considerably. “We’re seeing better borrowers and I think people are being squeezed out of the A and B space, and they’ve come to private lending for various reasons,” he said. “So our risk portfolio has definitely gone down, and we’ve grown substantially.”
It’s no secret that self-employed Canadians have faced significant hurdles in qualifying for a conventional loan throughout the turbulence of recent years, a period that’s taken in the bumpiness of the COVID-19 pandemic and the rapid rise in interest rates since 2022.
Shelter has focused on servicing those borrower types, Zilkie said, as they’re increasingly isolated from mainstream lending. “A big part of our portfolio is people who are self-employed or have their own corporation. Those people really got squeezed out,” he said.
“It’s difficult for a self-employed borrower if you don’t meet every single box [with an A or B lender]. We see a lot of those people that don’t declare enough income or just have marginal credit or whatever it is. That grew massively in our sector.”
Examining bank statements and determining whether a borrower has enough to make their required payments are top of mind when assessing those types of clients at Shelter, according to Zilkie, as well as making sure there’s enough equity in their property.
Detail and clear communication a winning strategy for brokers
The growth of recent years has also seen the company expand its network of brokers, momentum that looks set to continue in 2025.
While it doesn’t necessarily offer the lowest interest rate around, its speed of service and versatility are key selling points for the business. “We might not be the cheapest on the block but we certainly are quick and we can do some things that other lenders aren’t going to do,” Zilkie said. “And we go into some smaller markets too where maybe other lenders don’t want to go on A lending. Most communities with around 5,000 people in Western Canada, we’ll probably lend in.”
An influx of new lenders into the private space means it can often be challenging for brokers to stay apprised of different policies. Still, Zilkie’s best advice is for brokers to include a summary of where the property is and some detailed information about the file when sending an application or making an inquiry.
That means being specific and communicating clearly, rather than asking – for example – whether a loan in British Columbia at 80% can be serviced.
Is a wave of consolidation on the way in private lending?
Interest rates have remained prohibitively high in the conventional space for many borrowers over the past few years, although that trend could begin to ease next year as borrowing costs continue trending lower.
The Bank of Canada’s recent 50-basis-point rate cut is stirring hopes of revived housing market activity, though experts remain split on when the impact will materialize. https://t.co/XqcAkFBPRP#InterestRates #HousingMarket #RealEstateTrends #MortgageRates
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 25, 2024
That’s set to usher in a slight shift in the mortgage landscape for 2025, according to Zilkie. “As interest rates comes down, for people who have bigger lines of credit and the banks, they’re going to be more competitive,” he said. “It’s going to be a race to the bottom, and some of the smaller lenders are probably going to be squeezed out a little bit. They’re going to find it more difficult.”
New Anti-Money Laundering (AML) requirements introduced for mortgage lenders and brokers by FINTRAC, meanwhile, are also likely to lead to an uptick in consolidation in private lending, in Zilkie’s eyes. “That’s something to look out for in our space. I think the small [companies] will get smaller or go away in the next 12 to 18 months or two years – and I think the bigger guys will continue to get bigger just based on that fact,” he said. “We’re already seeing that trend.”
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