With the OSFI rules slated to take effect at the beginning of next year, the private lending channel is expecting business to boom.
Recent Teranet data estimates 10% of new mortgages in Ontario are provided by the private channel, with mortgage investment corporations leading the way.
Wasah Malik, a private lender with Mortgagepedia Inc., agrees with that estimate and says many buyers will have few options but the private channel.
“Firstly what happens when people do not get qualified on the A side is they go to the B side,” he said. “If that doesn’t work, then I think private lending money is going to become even bigger, and I personally think it will become bigger next year.”
Malik doesn’t see the market slowing down in the long run. While its players will pull back, he believes they’ll come back with gusto.
Frances Hinojosa, a mortgage broker and managing partner of Tribe Financial, believes the market will be resilient, thanks to strong demand.
“Immigration will continue to be strong, so there’s still going to be enough demand out there,” said Hinojosa. “I believe it’s going to come from population growth.”
Hinojosa doesn’t believe the OSFI rules are necessarily a bad thing. Even though Canadians’ buying power is expected to be drop—it’s been speculated by much as 20%—Hinojosa says there’s nothing wrong with staying within one’s means.
Purchasers might have to trade in the detached house for a condo, or the short walk to work for a commute, but at least they’ll be protected.
“Ultimately the rules I feel are there are to protect consumers from overleveraging themselves, not slowing down the market,” she said. “Those who can still qualify will still go out and purchase a property for shelter. People need to live somewhere, so it’s a decision of, ‘Do I rent or do I purchase, and what’s more cost effective for me at the end of the day?’”
She isn’t entirely sold on the private channel. She says it’s incumbent upon brokers to adapt and cover all of their clients’ options.
“Maybe privates aren’t the right fit for some clients if they’re looking for long-term solution. Private mortgages should really be put in place, in my mind for short-term strategies to get them from A to B, not from A to forever with the financing of their homes.”
