Consumers risk predatory lending in current environment

Canadians are taking significant risks when they go for alternative funding avenues in the current B-20 regulatory regime, a DLC mortgage professional claimed.

“What’s happened is the new rules, particularly the stress testing, have begun excluding many responsible Canadian homeowners who had previously qualified for mortgages, so many are unfortunately trying their luck with alternative lenders; either to handle their entire mortgage (highly inadvisable), or to top up a down payment,” Quebec-based accredited mortgage professional Terry Kilakos wrote recently in his analysis.

“By pushing people to the alternative lending market, [consumers] are being pushed away from the safe harbour of high-quality lenders and into a less regulated and higher-interest area of the market.”

Numbers from CIBC bear out these observations: in terms of dollar volume, alternative mortgages now represent around 7% of the market, up from the 5% proportion in 2017.

The activity represented by this growing share comes with risks innate to the alternative space itself, Kilakos warned.

“Regulation is looser on the alternative market, so by letting debt-to-income ratios climb much higher, it makes it easier for people to qualify for a mortgage. The catch is that by letting those ratios go higher, the homeowners are taking on more risk,” he explained.

Bank of Montreal chief economist Doug Porter looked at the numbers through a more optimistic lens, however. He argued that recent sales activity showed that the national market is gradually getting used to the most significant impacts of B-20.

“Canadian housing activity appears to be broadly stabilizing, as there are signs that the market has largely digested the many policy changes,” Porter stated in a report last month, as quoted by The Canadian Press.

“And while the regional divide is wide, fundamentals look to be a bit more supportive in the year ahead, with the policy tightening likely having run its course, job growth surprisingly solid and borrowing costs ebbing.”

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