Economic uncertainty and rising renewals are pushing private lenders toward tighter underwriting and product innovation
It’s been one of the fastest-growing segments of Canada’s mortgage market over the past decade – and now, amid broader economic headwinds and a cloudy mortgage and housing outlook, lenders in the private and mortgage investment corporation (MIC) sector are focusing on careful next steps forward.
Caution and rigour are the name of the game for those lender types looking ahead as economic uncertainty lingers, mortgage renewals at higher rates continue, and the space becomes increasingly crowded with new companies.
The sector’s appeal has always rested on its ability to move quickly and assess deals individually, according to Terence Yu (pictured top), business development manager at Ginkgo Mortgage Investment Corporation.
But maintaining a careful approach while also offering a sufficiently unique product and value proposition will separate the top lenders in the sector from the rest, he said, as its growth continues.
“As more participants enter the market and borrowers become more informed about alternative lending options, lenders will need to further differentiate themselves through service, product innovation, and disciplined underwriting,” he told Canadian Mortgage Professional.
The private and MIC lending sectors in Canada have stepped into gaps left by federally regulated lenders operating under strict qualification criteria as borrowers with non-traditional income, self-employment, or time-sensitive financing needs turned to options outside the banking mainstream.
MIC and private lenders carefully expand product base as demand grows
In the past, the space was most commonly associated with short-term bridge loans. But as qualification challenges grow for borrowers with major lenders, and the private and MIC sectors grow in the public eye, that reality is changing.
Yu said he’s observed a significant expansion of product offerings in the MIC space this year, with more of those entities introducing longer-term mortgage products and HELOCs (home equity lines of credit) – moves that reflect where borrower demand is heading.
That shift, he said, “reflects the growing need for more flexible financing solutions that can better support borrowers through changing financial circumstances,” and shows the eagerness of MIC and private lenders to “offer more customized financing options tailored to individual borrower needs.”
The reasons for the affordability squeeze facing borrowers are no secret to the mortgage community: a series of aggressive interest rate hikes by the Bank of Canada in 2022 and 2023, moving well above their pandemic-era lows, and a significant volume of mortgages now entering the renewal phase at higher rates.
The latter trend is one that’s pushed mortgage delinquencies higher, according to Canada Mortgage and Housing Corporation (CMHC), with the national housing agency keeping an especially close eye on the picture in Toronto.
How MICs’ lending appetite might evolve amid wider risks
Earlier fears among some industry watchers of a mortgage renewal “cliff” causing major ruptures in the housing market if borrowers could not handle steeper payments have proven largely overstated.
But last month, CMHC deputy chief economist Aled ab Iorwerth told CMP he still saw “pockets of concern” in the national mortgage market, even if the overall picture was relatively strong and borrowers generally appeared to be withstanding the shock of higher payments.
Lenders in the MIC sector, too, are well attuned to those developments – and Yu said they’re likely to continue having an impact on lender behaviour through the year.
“I expect many lenders within the MIC and private space to adopt stricter underwriting guidelines and place greater emphasis on risk management and borrower exit strategies,” he said.
Knowing how a borrower plans to repay or refinance is not optional, Yu said, particularly in a sector still prominently focused on shorter-term solutions. But while lenders in the sector might view the market through a more conservative prism and tighten lending criteria, that doesn’t necessarily mean the MIC space’s prominence is likely to fade.
Still, another shift might be underway. The days of broad expansion could be giving way to a period where execution, underwriting discipline, and relationship management matter more than market share.
"Lenders that can balance prudent underwriting with adaptability and strong client service will be best positioned for long-term success," Yu said.
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