A boom in construction permits for Ontario and Quebec is highlighting the need for greater access to one-year rate holds, says the head of a leading Montreal brokerage, arguing mortgage professionals are hamstrung in their efforts to capture a bigger share of condo sales during construction.
Nationally, the value of building permits in May rose 20.9 per cent to $6.4-billion, led in large part by residential construction plans in Central Canada, according to StatsCan’s latest numbers. Ontario intentions for multi-family dwellings, in fact, increased 23.1 per cent to $1.6 billion, following a 31.0 decrease in April. Quebec posted the largest month-over-month advance, up 45.8 per cent to a record-high $1.7 billion, driven by a mixture of some commercial but, again, dominated by plans for large multi-family developments.
That’s good news for brokers prepared to go after some of the thousands of originations those permits represent, but it should and could be great news, said Terry Kilakos, a chartered mortgage broker and owner of North- East Mortgages in Montreal.
“I get very excited when I see numbers like this because it forecast lots of increased activity,” he told MortgageBrokerNews.ca. “But the numbers also point to the need for more broker channel lenders to offer one-year rate holds to help brokers attract the business as clients are putting down deposits on condos. We do have access to the rate hold, but through a personal relationship at the branch level of a bank and not a non-bank lender through the channel.”
The extended rate holds are aggressively used by the banks, which generally fund large-scale condo developments with the understanding they’ll be allowed to set up shop in a developer’s sales showroom. The arrangement has discouraged some brokers from aggressive pursuing leads at that stage of the buying process, in large part because of the dearth of product available through their lenders. At least a couple banks using the broker channel offers the long-horizon rate holds to all brokers, and mortgage professionals working under The Mortgage Centre banner access the same product through CIBC.
Still, Kilakos acknowledges that it may be harder for non-bank lenders to follow suit, arguing those agreements expose smaller players to higher levels of uncertainty, especially given industry consensus around the likelihood of a Central Bank rate hike sometime in the next six months and the volatility of the bond market.
“Right now the best five-year fixed is, say, 3.56 per cent,” said Kilakos. “A year from now it could be 4.29 per cent. For broker channel lenders who offered a one-year rate hold, they would have just lost that extra 70 basis points. The big banks are willing to offer that kind of loss leader in order to cross sell on life insurance, credit cards and other products. Broker channel lenders need to be looking to do more of that in order to diversify opportunities for brokers.”
Like the Montreal broker, Michael Marini, a mortgage agent with Dominion Lending Centres Funds in Toronto, would like to see more of that diversification, although he now accesses one-year holds through a bank. Still, he doesn’t see mono-lines and other non-banks rushing to add the offering to their broker lineups.
“It just really isn’t financially viable, I wouldn’t think, because they don’t have the same kind of cross sell opportunities,” he told MortgageBrokerNews.ca. “But I don’t know that I need it for condo sales, perhaps for single residential construction where there’s a greater likelihood of the project finishing in that year and the rate hold actually being activated.”
Both agents are still finding ways around the banks, pointing to poor follow-up by mobile mortgage specialists with one-year-rate-hold clients and condo construction that invariably goes into extra innings, ultimately voiding their offers.
“What we find is that those buyers will get that one-year hold with the bank, but we often times can get them to switch over to us when they’re actually ready to close on the deal because of our rate and by staying connected with them during the construction period,” said Kilakos. “That’s even with the builder incentives to use their bank. They do the math and, we still represent a cost-effective alternative.”
And sometimes, even when it isn’t feasible to match the rate, said Marini, “my advice to the client to take that better rate earns me their referrals.”