Lender SVP on private market opportunities for brokers

Now more than ever is the time for education and knowledge to shine through, says exec

Lender SVP on private market opportunities for brokers

Purchase and refinance business surged in Canada’s mortgage market over the past two years as borrowers rushed to take advantage of record-low interest rates – but 2022 has seen a marked shift as activity cools and rates continue to climb upwards.

Mortgage professionals have had to adjust their own strategies as a result, and a leading figure in the lending space is calling on brokers to explore private options when considering solutions for their clients in the current climate.

Agostino Tuzi (pictured top), senior vice president, sales and operations at Pillar Financial, told Canadian Mortgage Professional that private mortgages had become an increasingly relevant choice for borrowers and brokers in the rising-rate environment of 2022.

“Over the last couple of years, it’s been less challenging [for brokers] to generate leads because purchase volumes were increasing and rates were so low – it’s just been a bit of a perfect storm,” he said.

“Now the reverse is true, and I think it’s important that brokers really take the opportunity to educate themselves, figure out ways to bring in business and really look to private lending as a viable option.”

That’s especially the case, he added, with rising rates and the mortgage stress test meaning that borrowers are now having to qualify at a rate that’s not dissimilar to those paid for private mortgage solutions in recent times.

“The stress test rate with some institutions is now pushed closer to 7% with the potential to be even higher with more rate increases on the horizon,” he said. “New borrowers were paying less than that for a private mortgage not that long ago.

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“So the landscape’s really changed. I think it’s incumbent upon brokers to really educate themselves on what private options are available.”

Traditionally, private lending has been a source of financing for borrowers that would not normally qualify with more conventional lenders – and that holds truer than ever in the current market, said Tuzi.

“It’s a great solution for borrowers that can’t find financing from a traditional source,” he said. “It doesn’t have to be a long-term, three- to five-year solution. It could be one or two years. Brokers should take the time to inform themselves on what private lending is really about.”

The number of private lenders in Canada’s mortgage market is growing rapidly, with the space having witnessed significant growth throughout the COVID-19 pandemic.

 That means it’s essential, Tuzi said, for brokers to do their homework and get their knowledge up to scratch on the various options available.

“There are a lot of different types of private lenders with varying product offerings,” he said. “It’s really important that brokers educate themselves on the many options that exist for their client base especially in the private space, which will keep them one step ahead of their competition.”

The housing and mortgage markets have continued to slow throughout the year as the effect of higher interest rates becomes clear – with the psychological impact of those rate hikes usually greater than what the actual rate is, according to Tuzi.

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“There’s a psychology behind it,” he said. “The whole market has to adjust – if you’re not used to these types of rates, and then you go from a sub-two rate to north of 4%, it’s a shock. It’s more than doubled.”

That’s one of the reasons that many Canadians are choosing to hit pause on their homebuying or refinancing plans, he said, along with choppy economic waters and unpredictable fluctuations in home prices across several markets.

“I think a lot of the borrowers or potential buyers are just sitting on the sidelines,” Tuzi said. “They’re just waiting. Nobody wants to buy when there is so much uncertainty as to where and when values will settle.”

Despite those challenges, there’s still opportunity in the current market – although Tuzi emphasized the importance of brokers becoming experts in their space in order to establish a true value proposition and set them aside from their counterparts.

“At the end of the day, I think it’s the specialists that are really going to thrive moving forward,” he explained. “It’s important that brokers really spot this opportunity to differentiate themselves, educate themselves and become specialists. And the opportunities will be with private lending.”