Canada’s housing market is red hot, but securing a suitable mortgage is becoming harder than ever before. Stricter lending requirements, new government controls and rising home values have made it more difficult for individuals and families to qualify for a loan. Although these new measures are intended to keep unqualified buyers from obtaining a mortgage, they are also impacting sound borrowers who may not have the equity or employment history traditional lenders look for when originating a loan.
Against this backdrop, the alternative lending market has carved out a strong niche in Canada. Sound borrowers turned away from the major banks are increasingly looking to private lender mortgages to finance their property. As a result, private lenders have seen their share of the mortgage market double over the past decade from 6.7% in 2007 to around 13% in 2016.
This profound shift is expected to continue amid the myriad of restrictions facing the major banks.
Canadian lending rules have come under intense scrutiny in recent years, as policymakers look to tame booming house prices. Unfortunately, this environment has made first-time buyers, small business owners and investors feel unwelcome when it comes time to finance their next property. Borrowers recovering from bad credit but who are employed are also finding it difficult to maneuver past the credit crunch.
Private lenders, which comprise a large and diverse subsect of the mortgage market, have rushed in to fill the void. Private lenders are satisfying growing market demand for uninsured mortgage products with greater than 80% loan-to-value ratios.
Unlike the banks, private lenders are willing to take on the extra risk on borrowers who just don’t meet the new criteria.
Naturally, this environment has made private lending a much more lucrative business for lenders and investors. Lenders who can enhance predictability in the private mortgage space are strongly positioned to perform well, thus generating solid returns for their investors. In some cases, investing in private mortgages has been shown to be more lucrative than traditional capital market portfolios.
As self-employment surges and more people look to clean up their credit, private lending solutions will be the trusted source of funding for many Canadians. This can also be observed by the growth and widespread adoption of broker services in recent years. Canadians are no longer making a beeline to their bank for a mortgage; instead, they are visiting a broker who works with various lenders to obtain the best financing terms on their behalf.
Canadian Mortgages Inc. is a non-bank residential lender dedicated to the private mortgage business. Through our Canadian Lending Inc. (CLI) division, we finance mortgages via the brokerage community and provide back-end lending solutions for several national operations. To learn more about our lending division, visit us at CanadianLending.ca
 Ron Alphonso (April 26, 2017). “Why More Canadians Are Turning To Private Lender Mortgages.” Huffington Post Canada.
 Reuters (January 11, 2017). “How lenders are sidestepping Canada’s mortgage rules with ‘bundles’ of debt.” Financial Post.