Executive highlights factors that could contribute to a big year for the alt sector

Lenders in Canada’s alternative space are bullish about the sector’s growth prospects for 2025, with a series of emerging factors expected to boost its popularity for the 12 months ahead.
Chief among those, according to Neighbourhood Holdings chief executive officer Taylor Little (pictured), is the continued tightening of lending standards by the national banking watchdog.
The Office of the Superintendent of Financial Institutions (OSFI), which regulates Canada’s banks, credit unions and lenders under federal jurisdiction, recently announced new requirements for uninsured mortgage lenders to limit the proportion of new loans within their portfolio exceeding an LTI ratio of 4.5 times the borrower’s income, effective the first quarter of 2025.
That could spur greater interest in the alt space – and the introduction of new capital sources, Little said, will also add “firepower and more competition” to the sector.
Another factor that could intensify interest in the alt-lending space: the integration of income verification tools with the Canada Revenue Agency (CRA). “There will be some adaptation friction here as a direct line from CRA will initially not factor in other income sources for borrowers,” Little said.
“We imagine that could lead to an increase in borrowers in our space as prime lenders adjust to CRA income integration.”
Phil Soper of Royal LePage noted that recent interest rate cuts and revised mortgage policies are revitalizing Canada's housing market. He anticipates further rate reductions in 2025, which will improve affordability and help younger buyers. https://t.co/ArLZ2WCO55
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 16, 2025
What should brokers keep in mind about alternative lending this year?
That’s not to say it’ll all be plain sailing for the sector in 2025. The coming 12 months are shaping up to be a “pretty wild year” for the industry, Little said, meaning brokers should be ready to dig in and be flexible – not least with their choice of lenders. “The most successful brokers are going to be the ones who can roll with the punches,” he said.
“It also helps to be prepared for a busy year, and that preparedness starts yesterday. Once the market comes back, and it will at some point, you have to be ready for it. It may take longer than you think, but the brokers who are best prepared will capitalize on that.”
Brokers can sometimes have a tendency to stick with their preferred alt-lenders and opt against trying out new ones, he added. “So selfishly, we would suggest, have more openness to new lenders. You might be surprised at how competitive our space is and that your clients are better served working with a different lender than one of your favourites,” he said.
Could lower rates bring buyers back to the market in 2025?
While it’s impossible to say with any certainty how the year ahead will play out, that’s far from uncharted territory for the mortgage market with recent years having seen plenty of twists and turns.
A plunge in interest rates helped spur a housing market boom during the COVID-19 pandemic before rates shot back up in 2022 and poured cold water over that red-hot activity.
Little sounded a positive tone on prospects for the market looking ahead even despite continuing uncertainty over the economic outlook. “As a lender, we’re primarily concerned with stability in housing values and while we think there may still be weakness in the market on that front, there are many pockets that are showing signs of strength,” he said.
“So from a housing value perspective we are cautiously optimistic. On originations, we’re preparing for a rebound year and are very well capitalized both from a capital perspective and team perspective to handle significant volume increases.”
The Bank of Canada slashed its benchmark rate several times in the second half of 2024, with further cuts expected this year and fixed rates also trending lower – and that should help boost market activity, Little said, despite potential bumps in the road ahead.
“Our internal view here is that the market has been slow for a while now and a lower rate environment should help boost housing activity,” he said. “That’s pretty much down the fairway in terms of conventional economic views out there.
“The major wildcards are changes to the employment rate, decreased immigration, the prospect of a new federal government and the actions of our neighbours down south.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.