Why brokers need to get involved with private lending

The sector's significant growth of late is set to continue, according to one executive

Why brokers need to get involved with private lending

With private lending having witnessed a groundbreaking 12 months, there has never been a better time for brokers to get involved with the sector, according to a brokerage relationship manager at one of Canada’s most prominent private lenders.

Travis Allinott (pictured), of Canadian Mortgages Inc. (CMI), told Mortgage Broker News that the sphere has seen a significant transformation in recent years, demonstrated by striking figures from Statistics Canada, the country’s national statistical agency.

“The private channel has been increasing [in volume] year on year for the last 15 years,” he said, “and I believe the most recent data from StatsCan for Q3 of 2020 shows that the number of mortgages provided by non-bank lenders was up by 41% year over year.

“It’s an enormous growth, and the expectation is for it to grow more in the aftermath of the COVID-19 pandemic.”

Allinott said that that growth had been fuelled by numerous factors including the rise of mortgage investment corporations (MICs), a development that “opened up the mortgage market” and helped improve public perception of the private lending sector.

Read more: Who will lead the private mortgage space in 2021?

He also noted the evolving nature of the workforce and stricter regulations around lending and securing mortgages, meaning that many Canadians have found themselves unable to borrow through traditional institutions.

“With the changing nature of the work that people do, the gig economy will continue to expand,” he predicted, “and those jobs fall outside the B-20 regulations. Tighter lending guidelines and more regulations that are currently being considered will drive more brokers to consider private options.”

With that in mind, Allinott – who recently chaired an expert panel discussion on private lending and its future at the Canadian Mortgage Awards – said that brokers would be missing a trick by not increasing their knowledge and expertise in the private lending sector.

“The rise in demand for private lending means that the more knowledgeable the brokers in the space, the larger their pool of prospective clients is going to be,” he said. “You’re not leaving any business on the table if you’re well-versed in this area.”

Brokers had come to the fore during the uncertain days of the pandemic by helping clients navigate the private lending space, Allinott said – particularly among those who found themselves without employment or seeing their businesses closed as a result of the shutdown.

“By providing relief to the borrowers who were laid off or found themselves with no income, the brokers that had the knowledge about private alternatives were able to provide the solutions to bridge the gap,” he pointed out.

The value of the broker in the space, Allinott emphasized, was also clear given the fact that private lending is usually a short-term solution, devised as a way of helping customers get back on their feet.

Read more: What sets some brokers apart from the rest?

He said that brokers could demonstrate their worth by working with clients and placing them in the sphere with a clear plan to return to more traditional borrowing methods. “It’s a temporary solution, and it’s intended to bridge the customer back to conventional borrowing again.”

Allinott also noted that it was important for brokers to steer clients in the right direction in terms of the private lender they selected, saying that while predatory lending had diminished in the sector, it still remained a potent concern.

“In the past, private lending only came from a small company or an individual,” he said. “Now, we’ve got companies that are well-established, reputable, and very transparent with everything.

“Brokers need to do their homework, because there are still some smaller MICs that don’t have the transparency. They want to do their research and find a reputable company that is helping the client, and not making things worse.”