Broker discusses lender aversion to micro condos

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Micro condos may be one of the biggest Canadian real estate trends on the horizon, but financing continues to be an issue. One broker explains why.

“The concern is the type of buyers that are interested in these condos; many are being marketed as great rental opportunities … and that’s not something that, in case of a downturn in the market,  lenders want heavily on their books,” Chris Molder of the Mortgage Centre told MortgageBrokerNews.ca. “Rentals become a bit of a luxury when markets become repressed.”

According to the CMHC, condo demand is going to increase as more immigrants flock to larger cities like Toronto and Vancouver. Faced with that demand, many builders are increasingly focusing on maximizing space, which means building lower-priced micro units.

However, while the idea of smaller, more affordable units in the city core is attractive to first-time buyers, but many are surprised by the lack of mortgage options when the time comes for financing.

“With these micro condos there hasn’t really been a market established for them in terms of resale, so they have no idea (what the resale market will be like) so lenders are playing it safe to see how it all pans out,” Molder said. “That’s really what I think is happening: No one wants to be a chump. Some lenders are doing it, some aren’t.”

The issue isn’t with mortgage insurance, according to Molder, who says insurers don’t have minimum square footage requirements. It’s the lenders, specifically, that are shying away.

And with fewer lending options out there, micro condo homebuyers are forced to pay higher rates.

“You don’t always get your first choice lender or what rates you would want,” Molder said. “You just don’t get the flexibility or the options.”
  • David Pylyp on 2015-01-06 3:00:08 PM

    pick a condo with a view, see feel and touch the finishes, walk the hallways and bedrooms.

    Toronto's vacancy rate continues a 1.8% Rents are strong. Couples with good jobs are not squeezing into 400 sq ft. you better have parking.

    #bythewater Toronto Condos
    David Pylyp

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