Lee Noble, VP business development at Lendesk. Lendesk operates Gateway, a modern, web-based loan origination system and deal portal for alternative lenders.
If tightening restrictions around Canada’s mortgage qualification rules weren’t enough to deter homebuyers, throw in a global pandemic. Restrictions around source of down payments, credit score minimums and debt service ceilings have made it increasingly difficult for Canadians to secure a traditional mortgage, particularly for high-ratio deals. The added stress of COVID-19 on the economy has also caused the income of many Canadians to be adversely affected.
“Despite the challenges brought on by the COVID-19 pandemic, there are still great borrowers who can put together a sufficient down payment and make their payments on time,” said Lee Noble, vice president of business development at Lendesk. “By virtue, this will push more borrowers to alternative lending.”
Noble says alternative lending solutions can be particularly helpful in major markets where housing prices continue to rise. In Toronto for example, average home sales prices shot up by over 20% year-over-year in August to reach $951,404. These increases are adding new challenges for borrowers to qualify for traditional mortgages that are often based on income requirements. In the meantime, baby boomers are downsizing and it’s creating a historic transfer of wealth.
“This is creating down payment assistance for millennials in a time where incomes aren’t rising at the pace of housing prices. They may have a sizable down payment, but they don’t have the paycheck to go along with that.”
Noble says this is an opportunity for alternative lenders to increase their market share, as the mortgage landscape shifts. While the impact on employment and income will hopefully improve as COVID-19 releases it’s grasp on the economy, he says alternative lenders are in an ideal position to help Canadians through their ability to look at a borrower more holistically and offer shorter terms and flexible payout periods.
“If a borrower’s eligibility is compromised or affected negatively, they can look at how everything else plays into the picture because frankly, they are risking their own capital. That’s a luxury that prime lenders don’t have and risks that banks can’t take on,” said Noble.
The role of technology
Flexibility will be the number one asset post-pandemic. Noble says there is a big opportunity for brokers to educate borrowers on the type of financing scenarios they can help with through alternative financing, to overcome the common misconception that non-prime mortgages are only for people with poor credit history. He recommends both brokers and alternative lenders leverage the right technology to better understand all the options available to borrowers during this time.
“Innovation is growing hand in hand with the size of the alternative lending market, and we're only going to continue to see that,” he said.
One of the great ways this will continue to benefit alternative lenders is augmenting their current processes to make them more available to brokers, and help them get the word out there about the types of clients and borrowers they are looking for. Using technology like Lendesk Spotlight Search and social media to connect consumers with more flexible options will put brokers and lenders in a prime position to grow and scale with the rising tide of alternative lending space.
Spotlight Search is a product pricing tool that gives Canadian mortgage brokers easy access to lender rates, policies, and guidelines, all in one place. Just this year, Lendesk launched a mobile application for brokers which grants on-the-go access on rates and policies to help brokers make informed and accurate decisions. With over 3500 policies and qualifying guidelines, including alternative lenders who may not have the same brand recognition and popularity as some of the large banks, making it an efficient way to find innovative solutions for borrowers.
“There are tools on the market that can help brokers find the right lender for a client, even if their client has unique eligibility in a narrow geographic area,” added Noble, encouraging lenders to engage with new technology. “There’s temptation when business is good for lenders, like it is for many in the alternative space, to not want to change their processes, but I encourage industry leaders to keep aware of what’s available and capitalize on the benefits being provided by new technology.