More and more Quebec homeowners are turning to lenders outside the banking sector, despite the risks, to access a mortgage loan. This situation reflects the difficult economic context and the tight real estate market in the province, where access to property is increasingly becoming a privilege.
From brokerages to insurance companies, money lenders to finance companies, there are plenty of alternatives to banks for homeowners with debt or modest incomes who are trying to get a mortgage from organizations that don’t have to follow the same strict rules as Canadian banks.
Across the country, the share of residential mortgages granted by these players has averaged 23% since 2014, according to Statistics Canada data provided to Duty. In a sign that the use of these bank substitutes reflects the problems in accessing property, it is mainly in Ontario and British Columbia, by far the two provinces where real estate prices are the highest in the country, that the largest share of owners using these non-bank loans is reported.
Quebec is, however, starting to carve out a place for itself in this ranking, on the sidelines of the rapid increase in property values that has been noted in its territory since the pandemic. The province was thus associated with 3.9% of “non-traditional” mortgages recorded by the Canada Mortgage and Housing Corporation (CMHC) last year, compared to 2% in 2019, before the health crisis. This percentage had also reached 5% in 2022, at a time when property values were peaking in the province.
A less accessible market
A report published by JLR Land Solutions at the end of May reported a 2.7% increase last year in the market share of residential mortgages in Quebec, captured by “small lenders,” who are thus competing with federally chartered banks and Desjardins. The situation is explained by the fact that “many borrowers do not meet the conditions required to obtain a mortgage loan from a traditional lender,” notes the report.
“We must understand that access to financing has become complicated due to the increase in interest rates. People no longer qualify” for mortgage loans from banks, notes real estate consultant and entrepreneur Jean-François Tremblay.
Due to the surge in property values and the increase in interest rates in recent years, the down payment that Quebecers must have to acquire a property has in many cases “doubled,” he explains. An amount that many “first-time buyers” cannot afford, which encourages them to turn to less demanding “alternative lenders,” continues Mr. Tremblay.
“They don’t really look at the debt ratio” of aspiring owners, unlike banks, notes Steve St-Onge, who used this type of loosely regulated loan to acquire a triplex in Shawinigan in recent years.
Significant risks
“We see that there is a much greater demand in this segment because people do not qualify [pour des prêts hypothécaires traditionnels] “, confirms Tania Bourassa-Ochoa, economist at the SCHL. For many, it is therefore a solution of “last resort”, she explains.
“It’s a riskier customer profile and these are much shorter loans, perhaps one or two years,” which are offered to them by these alternative lenders. The borrowing rate offered by the latter, which has climbed in recent years, can reach 15% in some cases, a rate “much higher” than that offered by the banking sector.
These loans are not without risk for borrowers, however. In fact, the CMHC reports a sharp increase last year in the rate of loans in arrears for at least 60 days, while the number of property seizures by these organizations also rose again across the country last year. “If you don’t have a well-established exit strategy [des prêts non traditionnels]you can crash hard,” warns Steve St-Onge.
“It’s a bit like a jungle”
The growth in Canadian mortgage debt associated with non-bank intermediaries in recent years has also been partly fueled by a jump in the popularity of private lenders, which are generally less regulated and organized than insurance companies and financial firms, noted The duty.
This more marginal category — which includes non-financial corporations, individual private lenders and “non-residents” lending to Canadians looking to buy a home — has been dubbed “other lenders” in Statistics Canada data. Canadians’ mortgage debt tied to this category grew by 69 per cent between January 2018 and April 2024, while that growth was 19.3 per cent for Canada’s major banks, the analysis shows. Duty.
“There is a lot of growth” for certain non-bank “sub-sectors” that are “less regulated” and provide mortgage loans, confirms Matthew Hoffarth, an analyst for Statistics Canada.
Combined with mortgage investment companies, which also offer loans with a high interest rate, “other lenders” have thus monopolized 2% of the mortgage debt of Canadians on the residential market since the beginning of the year. A low percentage, but one that still concerns the CMHC, since these non-banking organizations are not subject to the prudential regulation that governs banks and aims to protect the financial health of institutions and borrowers.
“This market is a bit of a jungle,” notes Jean-François Tremblay, who deplores a “flagrant lack of regulation and structure” affecting alternative lenders.
Economist Tania Bourassa-Ochoa points out that these alternative lenders can sometimes represent a lifeline for households going through a divorce or another difficult period, for example, and who need to quickly acquire a property. However, this option must be temporary, she points out, because the debt can quickly become unbearable. “It can’t be a viable long-term solution.”