As economic conditions influence continuous change in the lending market, private mortgages continue to gain significant traction. Canadian home buyers and home owners alike have been paying close attention to the Bank of Canada’s series of rate hikes since March 2022, which continues to drive up the costs of borrowing.
Even before the central bank’s recent efforts to curb inflation, borrowers began looking at private lending as a viable financing option. The dollar value of private mortgages in Ontario increased by 72% to $22.4 billion in 2021 from $13 billion in 2019, according to a report by the Financial Services Regulatory Authority of Ontario (FSRA). In recent years, mortgage regulations, like the stress test, have gotten stricter, mortgage insurance rules have changed, and the way we work is different.
This has led to a growing number of Canadians not being able to borrow through traditional lenders or banks. These Canadians—with challenged credit, untraditional income, or for another reason can’t secure traditional financing—are realizing more and more that a conventional bank mortgage won’t work for them. The Canada Mortgage and Housing Corporation (CMHC) recently reported that, in 10 quarters through September 2022, private mortgage market share surged 45%—meaning that about one in 10 Canadian mortgages is private.
With alternative financing filling the financing gap left by traditional lenders, private lending expertise is a must-have. Mortgage professionals must be able to educate their clients on how this flexible and fast-growing solution can work for them—or leave borrowers’ needs unmet and business on the table.
Adding private lending to your mortgage tool box
To stay ahead of the curve in today’s competitive environment, knowing your client and knowing your lender go hand in hand. It’s key to have a strong understanding of your clients, and how your lenders and their offerings could solve for their needs. Brokers who are comfortable with both traditional and private lending are able to provide the best possible service and advice to their clients. This was evident following the pandemic when many borrowers were shut out by the banks after losing their jobs, moving out of urban hubs, or taking the leap into gig work or self employment.
Not only are you able to help borrowers meet their goals, or in some cases, get back on their feet, you’re also expanding your book of business. The ability to service a variety of different borrowers can help you elevate your brand, increase client satisfaction, and grow your business by not only meeting more client needs, but also through referrals from those clients.
Educated brokers = informed borrowers
In order to serve the growing client base that private lending can help you build, you’ll need to bolster your education. Continuous education is a must if you want to stay competitive by today’s standards. In addition, certain provinces are requiring that brokers are well-equipped with the information they need to provide private mortgage advice.
In April 2023, the Ontario government and the FSRA implemented a new two-tiered broker accreditation for mortgage agents and introduced enhanced educational requirements for brokers and agents working with private mortgage lenders. These new learning mandates are intended to ensure that brokers are providing appropriate mortgage advice, especially in the private lending space.
The province of British Columbia is also upping their standards for mortgage professionals, with new rules coming into effect by the end of 2023. BC’s new mortgage services act will introduce stronger regulations for mortgage brokers, lenders and administrators, and establish new licensing requirements and increase financial penalties.
These new educational requirements are intended to make the mortgage space safer for all, and reinforces the importance of building strong relationships with a private lender that you can trust. Remember, not all private lenders are equal, and if you unintentionally lead a client through the mortgage process with an unethical private lender, it could have devastating consequences for them—and for your own reputation.
With the right education and experience, you’ll have the background knowledge needed to choose your private lending partner and ask the right questions. In particular, when working with a private lender, it’s important to understand whether they’re licensed, if there are any discharge fees or “back-end fees” for specific clients, and how to work with your clients to come up with a robust exit strategy.
CMI’s commitment to broker education
Brokers can turn to several different resources for upskilling. Mortgage Professionals Canada offers licensing courses that are designed to meet qualifying standards and requirements based on the province that you operate in. In addition,your provincial chapter of the Canadian Mortgage Brokers Association (CMBA) offers events and networking opportunities. Plus, the CMBA Mortgage Broker Institute is a great place to find short, affordable courses on specific topics.
As Canada’s premier private lender, we understand how paramount it is for brokers to be on top of their game when it comes to education and experience. That’s why we prioritize offering resources and learning opportunities through webinars, presentations, and informative materials on topics like how to sell private mortgages and how to close more deals. In addition, your brokerage relationship manager (BRM) is here for one-on-one support to discuss specific client situations and help you find a solution that works. CMI also offers resources on how to package deals to give your clients the best chance at financing. In addition, our Broker Blog features insights on several topics of interest for both you and your clients (just like this one).
Finally, consider implementing some of the following tips to help keep you stay up to date and on top of industry news and trends:
- Set aside a training budget when planning expenses—a modest investment in your education is an easy way to future-proof your business and improve your credibility
- Take five to 10 minutes a day—maybe with your morning coffee or tea—to tap into industry resources, whether it’s a podcast, website or newsletter.
- Reach out to your lender for more information on new products and solutions—don’t be afraid to ask the hard questions, and go over different client scenarios to understand how versatile products can be.
Our team is eager to work with you to best serve your clients—experience the CMI Difference. Learn why we’re the preferred partner of brokers across Canada. Submit your deal today.