The big five banks control the majority of Canadians’ money. Those banks love residential mortgages at no more than 80% loan to value. Anything above that ratio will require Canada Mortgage and Housing insurance to protect the banks against any possible losses, with that insurance paid for by the borrowers. Those bankers want to lend to Canadians with good credit ratings and regular employment income.
The Canadian banks sailed through the 2008 credit crisis relatively unscathed and became the envy of the world for their strength and conservative balance sheets where other banks failed. Although their loan loss provisions have recently been taxed somewhat due to the plummeting price of oil and their lending to that sector of the economy, they are still immensely solid and strong without exception. Each earns billions of dollars of profits each and every year. They succeed because they are a protected sector of the Canadian economy and they are immensely conservative.
This is all well and good if you are a Canadian with good credit and a good job. You will be offered a variety of 2.3% to 3% five year mortgage options and can sometimes even create a bidding war amongst a couple of different bank lenders if you fit into that perfect borrower profile. So if you do, you don’t need any new home lender as you will be immensely well served by the big five banks.
For the rest of us, Canada is a somewhat hostile place for securing a mortgage. There are few attractive options for self employed individuals. Scotiabank tries to understand those who run their own businesses as does Street Capital and Home Trust. Their lending standards, though, are still arduous to qualify for and their interest rates are generally higher than the 2.3 to 3% offered to their employed peers.
For those who are self employed with less than stellar credit, the options are very poor. Even those who already own their own homes have trouble renewing mortgages and find it near impossible to increase their mortgage principal. For this reason Northwood Mortgage advertises on 680 News focusing on their approval of any borrower who already owns their own home. That is an underserved market.
There are countless places, many located in the Allen Road and Sheppard area of Toronto, offering 100% approval for car loans regardless of credit. There are no home lenders offering the same.
Toronto could benefit from a few new lenders offering the following lending services:
- Those that permit equity only lending
- Those that permit lending without personal guarantees and price in the risk of the lack of guarantee
- Those that price in the risk of lending to employed individuals who have bad credit
- Those that lend to self employed individuals with good credit
- Those who lend to employees who are paid in cash so don’t have qualifying income but have a sufficient down payment to buy a house
- Anyone else who doesn’t fit the bank’s very restrictive lending criteria
The services described above would benefit Toronto residents who don’t now qualify for mortgages or who have to approach private lenders now if they wish to buy real estate.