Commentary: On the whole, current policies are harming consumers

The B-20 policy regime is producing the exact opposite result of its intentions, according to a Dominion Lending Centres accredited mortgage professional.

In the current regulatory environment, a growing proportion of Canadians are risking predatory tactics instead of the more time-tested traditional lenders, Quebec-based Terry Kilakos wrote recently in his analysis.

Kilakos cited a recent survey by CIBC, which found that in terms of dollar volume, alternative mortgages now represent around 7% of the market, up from its 5% share just two short years ago.

“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,” the analysis published in DLC’s online portal noted.

“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.”

The foremost risks are inherent to the nature of the alternative space itself, Kilakos posited.

“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 argued.

“And more risk means lenders need to get something from consumers to make it worth their while. So, they’ll charge higher interest rates. They’ll tack on fees. They’ll add clauses to your mortgage that make it difficult—and costly—to refinance or get out of your mortgage.”

Ultimately, while their growing popularity indicates a demand that must be met one way or another, the still-unregulated nature of non-bank options presents long-term dangers.

“Someone who’s been denied a mortgage offered by a large bank or another first-tier lender and has been able to find a mortgage elsewhere may be relieved to be in their new home. But they’re sitting on a growing pile of toxic debt,” Kilakos stated.