[Chronique de Gérard Bérubé] “Alternative” lends crosshairs

The combined impact of the strong surge in house prices and rising mortgage rates is driving an increased number of buyers towards “alternative” lenders.

Nationwide, insurance and finance website Ratesdotca said credit unions and private lenders accounted for about 3.7% of mortgages last year, but they have already processed approximately 6 and 7% of activity so far this year, with underlined text from The Canadian Press published this week.

Information on mortgage investment companies reported by Canada Mortgage and Housing Corporation in its latest Residential Mortgage Scorecard shows a decrease in their risk profile. The average share of first mortgage in their portfolio increased from 75.7% in the second quarter of 2020 to 81.4% in the corresponding quarter of 2021. Before the pandemic, their portfolio consisted of 65% first mortgage. first rank, the remaining 35% are of lower rank.

With the exception of the Desjardins Group, the share of loans granted by non -bank lenders remains marginal, but growth has doubled, from 2% in 2020 to 4% by the end of 2021. Also, if we exclude Desjardins, with 40.3%of its share of mortgages associated with new acquisitions, “other lenders” ranks second in Quebec with a weight of 11.5%, behind the National Bank (13%), tell us the data combined- together with JLR financial solutions.

The median price of a single-family home in Quebec exceeded $ 415,000 in the first quarter, up 22% compared to the corresponding quarter of 2021, reaching $ 365,000 for a condo (up 20%) and $ 520 000 for plexes that with two to five units (+25%), borrowers – even those that are said to be of high quality – are more likely to fail the financial stress test that traditional lenders must apply, which are subject to federal regulations . Rising mortgage rates only exacerbate the transition to unregulated lenders.

According to the guidelines of the Office of the Superintendent of Financial Institutions, the test is based on the highest interest rate between the one offered by the institution, which increased by two percentage points, and the rate of 5.25%. The final rate was 4.79% before the rules tightened in June 2021, which extended the application of the test to insured loans. The increase in the value of money, with fixed rates rising since 2021 and exceeding 4%, reduces the total amount for which the borrower will be eligible.

These “alternative” mortgage lenders work on a case-by-case basis, but typically the inquiry rate is 100 to 200 basis points higher than traditional lenders. And the loan will usually have a shorter term, time to allow the borrower to re -qualify. The Nesto site reminds us that “alternative” mortgage lenders come in all shapes and sizes. Each will have different interest rates and approval requirements, total loan amount, and unique maximum loan-to-value coverage.

Significant increase in rates

In their latest study of deteriorating housing affordability, National Bank analysts wrote that their benchmark five-year mortgage rate rose 46 basis points in the last quarter of the year, the sharpest quarter-on-quarter. variation since the third quarter of 2013.

For its part, the annual rate increase is the strongest in more than two decades. “Most buyers have avoided these sharp increases in recent months by opting for variable rate mortgages, but the funding conditions for them are no longer attractive now.»

Economists point to Conference Board data, which shows that 60% of consumers say now is a bad time to make big expenses, to point out that this is the highest percentage recorded outside of a recession. .

And to remind that we are just at the beginning of the process of normalization of monetary policy with, as a result, an inflationary slippage calling for a more aggressive increase in the value of money than expected.

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