Its been a busy first half of 2018 for those in the mortgage industry. Primarily, we saw foreign buyer taxes in some jurisdictions, as well as the introduction of revised B-20 guidelines on January 1, which added new requirements for borrowers already under stress from heated housing markets and rising interest rates.
The Bank of Canada itself said that this new regulation will disqualify one out of every 10 Canadian borrowers from obtaining a mortgages from a traditional lender. The BoC went on to note that in Canada’s expensive housing markets, one in eight borrowers will likely be excluded.
Clearly, the new qualification rules are having an impact on borrowers – but what about us as mortgage professionals?
Many brokers and agents complain incessantly about the changes, but over the past decade, we have seen many equal or larger changes in an even shorter period of time. Brokers who know how to adapt are the ones who will thrive.
These changes are actually good for the broker channel, primarily because they improve the medium-term credit quality of the consumer and improve resilience at banks. In addition, as brokers, we have the tools to work outside of the regulations, whereas our bank competitors do not.
Perhaps the most important issue for brokers these days is not the stress test itself, but the impact it’s having on the alternative market. The banks are rejecting business – since January, the brokerage firms and agents we work with as a private lender have seen a dramatic increase in borrowers reaching out who have either been denied by – or received unfavourable terms from – traditional lenders. This includes prime borrowers on renewals. Thus, many borrowers have been pushed to the B channel.
However, turnaround times with B lenders today would have been considered unconscionable only a few years ago. That’s caused many B borrowers to look to the private channel for financing due to timing considerations. Not to mention, there are many deals that can only be done privately today that might have been an A or B deal just a few years ago. As a private lender, our overall credit quality has gone up considerably over the past three years.
BoC Governor Stephen Poloz said himself: “A key issue for the Bank, then, is understanding how people will react when they are told that, under the new rules, they do not qualify for the mortgage they would like ... People might also look for a lender that is not bound by these new mortgage rules so they can avoid facing the stress test.”
The proof is in the statistics. Canadian Real Estate Association sales data from July showed that national sales rose by 1.9% over June. A Re/Max analysis interpreted this as an indication that buyers have adjusted to the stricter qualification rules.
Canadians still want to – and will – buy homes. People still owe debt that must be refinanced, or that’s cheaper to pay off at 7%, 8% or 9% rather than the 28% they were paying. The higher interest rates and tighter regulations have had an effect on this, but demand for housing and debt is strong and will continue to be for the foreseeable future.
Consumer sentiment isn’t great, though – and this is where your ability to solve problems as a broker is critical. Will Dunning, Mortgage Professionals Canada’s chief economist, recently noted that “our consumer survey has found that sentiment regarding the housing market has shifted decisively downwards during the past year and a half, reflecting the impacts of increased interest rates and government policies that are making it more difficult for potential homebuyers to obtain the mortgage financing they need.”
In the current environment, brokers must focus on their relationships and offerings from alternative lenders. Your business depends on it. So what does this mean for you?
Mind your network of lenders, nurture your relationships with clients and creatively solve lending challenges. Borrowers typically come to us with a problem they need solved. We can no longer solely rely on traditional methods and service providers to fulfill these financial requirements.
To those stuck in the A or B world only, branch out. Develop and grow your network of alternative and private lenders and creative financial strategies to help better solve your clients’ needs. Today, this applies just as much to AAA clientele as it does to any other channel.
Bryan Jaskolka is chief operating officer of Canadian Mortgages Inc., one of Canada’s largest private residential mortgage lenders. He was a finalist for Mortgage Broker of the Year (More Than 25 Employees) at the 2018 CMAs.