A tougher sell for private lenders?

A tougher sell for private lenders?

A tougher sell for private lenders? In the wake of falling rates, private lenders may have a tougher time selling clients on higher rates; but not if expectations are properly managed.

“I would say it’s the broker’s job to inform the borrowers about what is going on in the marketplace.  Whether A-lenders’ rates are 2.5 per cent or 4 per cent and the non-bank lenders’ rates are significantly higher, say 7-8 per cent, even if we were to match the A-lenders drop in rates by 25 basis points, it’s still significantly higher,” David Vyner of New Haven Mortgage told MortgageBrokerNews.ca. “It’s pretty much fairly safe to assume the majority of non-bank lenders will not drop their rates in sync; it’s a different marketplace.”

New Haven Mortgage is a non-bank lender that operates in Ontario, and Vyner said it has no plans to drop its own rates at the time.

“Our lending matrix and rates will remain the same; the institutional B-lenders may but generally I don’t suspect any non-bank lenders to follow suit,” he said. “We don’t deal direct with the homeowners, but if I were to wear the broker’s hat I would explain that our cost of money has not changed and we still have to maintain a certain spread to be profitable.”

There has been much discussion in the media about falling rates; the Bank of Canada kicked the discussion off by slashing its overnight rate, and the banks followed by offering special promotional fixed rates and, eventually, cutting their own respective prime rates.

So with all the talk of rates, will it be tougher to convince clients to pay higher rates for private money? Not according to one broker who specializes in the space.

“It’s not a hard sell because those who apply for private mortgages do so based on need,” Shawn Allen of Matrix Mortgage Global told MortgageBrokerNews.ca. “Clients are educated and they’re smart; It’s not like an “A” client shopping for rate, it’s a client looking for a solution.”
  • James Robinson 2015-01-29 12:02:22 PM
    In 1989, fully qualified 1st mortgages were in the 10.75% to 11.50% range, non qualified 1st mortgages were roughly 1/2% to 1% higher through companies like Municipal Savings and Loan, and private 2nd mortgages were between 15% and 16%. So in those times, there was a 35% rate premium between a fully qualified 1st and a private 2nd. Today, the private 2nd rates are about 4 times the fully qualified 1st mortgage rates. I don't begrudge the privates for these rates as that is free enterprise, but they have to expect a little push back from consumers. I guess we can draw the same analogy with the credit card business.
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  • David 2015-01-30 7:01:19 AM
    If you are selling a private mortgage based on the rate and not based on the solution it offers to the client, then you may need a sales refresher. Private lenders offer solutions that are not available at "prime" rates. Understanding that the rate gap between prime and private is high, but the private investor is taking high risk, clients sometimes don't pay, and the rate should act as an incentive for the client to address and fix any issues that prevent them from getting those prime rates.
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  • James Robinson 2015-01-30 8:28:32 AM
    David, you completely missed the point I was making. I am not passing judgement on the risk reward for the private investor nor their right to run their business as they see fit based on the risk. I was illustrating the change that has occurred over the last 25 years. The same widening gap has occurred in credit cards and for that matter, wages of the rich and poor. For you to suggest that the high rate is an incentive for clients to fix their ways is naive as we know that over 75% of "B" clients remain "B" clients for life
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