BoC: Private Lenders See Their Share of Canada’s Mortgage Market Double Since 2015

Canadian real estate sales are just off of record highs, but how many buyers had to skip traditional lenders? Bank of Canada (BoC) numbers show more buyers are turning to private mortgages. The sparsely regulated form of lending allows people with insufficient credit to get a mortgage at steep rates. Despite the steep rates, these lenders have seen their share of the market double since 2015.

Private Lenders

Private mortgage lenders are a popular way to get a mortgage, but with little regulations. Unlike federally regulated financial institutions (a.k.a. banks), these lenders are not regulated by OSFI. Consequently, they are not subject to pesky rules, like B-20 Guidelines. They’ll lend you whatever you want, as long as they believe the can recover what they lent you. Sounds great, so why doesn’t everyone use them?

Private lenders charge steep rates, which prime borrowers shouldn’t pay. These borrowers typically pay over 200% what they would at the Big Six, making it difficult to break even. For example, if you borrowed a mortgage at 2.75% you would need prices to rise at least 16.28% over five years to break even on direct costs in Toronto. If that mortgage rate was 9%, you would need prices to rise over 42.55% during that same period – a lot more. To sum it up, people borrowing from private lenders don’t have the credit needed to borrow, and have lofty expectations for price growth. There’s a term for people that have a less than prime borrowing criteria, but it always slips my mind.

Private Lenders Now Hold Almost 8% of Canadian Mortgages

Canadians have been turning to these lenders even before stress tests. Over 7.87% of the Canadian mortgage market is held by private lenders, a 37.8% increase compared to the same quarter last year. This is the sixth consecutive quarter we saw this share grow, sending it to the highest level in at least a decade. It really starts spiking in the second half of 2017, just when prices took a breather, but the fear of being locked out of the market forever remained. Stress testing under B-20 Guidelines only became mandatory on January 1, 2018.

Mortgages By Private Lenders In Ontario

The percent of Ontario’s mortgage market that is held by private lenders.

Source: Bank of Canada. Better Dwelling.

Canadian Private Lenders See Over $2 Billion of Mortgage Originations In 2017

The dollar value of private mortgage originations in the first quarter of 2017 is just off of the high. The first quarter of 2018 saw $2.09 billion worth of originations at private lenders, 2.95% higher than last year. BoC analysts pointed out that private lending originations are stable at just over $2 billion per quarter. In contrast, other sources have been declining. Despite the steady level of originations, the rate of growth is tapering.

Mortgage Originations By Private Lenders In Ontario

The dollar value of private mortgage originations per quarter, in Ontario.

Source: Bank of Canada. Better Dwelling.

More Canadians are turning to private lenders, but the BoC has doubts it can grow much larger. In their annual review, they state private lenders have to “materially expand their funding sources” to grow. That’s a technical way of saying it’s hard to find much more money than they’re already finding, in order to fund growth.

Still, at $2 billion per quarter in originations, there’s a lot of Canadians willing to pay steep rates for homeownership. The steep rates make it extremely difficult to actually make a profit on that home. More important, how many people rushed into homeownership before they were financially prepared?

Note: The Bank of Canada only used Ontario to provide their insights, due to a lack of data in the rest of the country. Yes, not even the BoC is able to get their hands on the data needed to figure out how many private mortgages are in Canada.

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  • Ian 6 years ago

    Wait, so that’s just Ontario? And by just Ontario, it would most likely just be Southern Ontario. This is going to come tumbling down soon.

    • Trader Jim 6 years ago

      The big threat with private lenders when prices are at peak is you’ll have a tough time refinancing at a normal lender. People take out private loans thinking they can go to a normal lender in 5 years when they have some of it paid down, but if the price of your house drops, you won’t have a sufficient LTV. You’re stuck at a private lender, that’s going to have rates that are rising even further.

      There’s also the additional issue that you may not be able to get into a regular bank due to B-20 stress tests. If you’re thinking of a private loan, think *very* carefully right here.

      • Bluetheimpala 6 years ago

        If a banks has identified a private lender, either semi-profession/organized or even just a bunch of liquid guys leveraging everything they have under a basic LLC or even nothing, why would they ever let them re-up at all? We have a banking oligopoly and now the music has stopped… in every scenario, these smaller amateurish lenders, which are both pigs and possums mind you, go belly up and the banks can buy the underlying debt for pennies on the dollar. These companies aren’t borrowing from the BoC, they are way too small. All their doing is basically a form of micro-loans where they borrow big and dole out portions at higher interest rates. It doesn’t take a genius to do this when rates are low and assets are appreciating but I guarantee these companies are not hedging at the levels required to underpin their core business and offset any significant loss to one part of their portfolio…mark my words, the banks are going to hang these lenders out to dry and pick up the pieces. BD4L.

      • Grizzly Gus 6 years ago

        From what I have heard, alot of the alt lenders only lend out on a one year turn. Model I have come across is basically this.

        1 year term to help borrower qualify for their 20% down or what ever. Loan will be at an elevated rate (8-18%) and there will be 10-20k in fees that are slapped onto the principle.

        These lenders will allow you to go to 90-100% LTV, and are second in line to main banks if a power of sale is required. Some will allow missed payments to just be added to the principal.

        After the 1 year, borrower is supposed to refinance with a normal lender so that the alt lender gets their original capital + fees back to then go out and make new loans.

        My point in all this is that shit could hit the fan very quickly.

        • Bluetheimpala 6 years ago

          (Bang! Splurp!)
          Blue: what’s that noise? Sounds like a bag of spaghetti being thrown up against a wall.
          GG: That my boy is the shit hitting the fan
          Blue: Ahhh, I was hoping it was spaghetti.

          • Grizzly Gus 6 years ago

            Its a pretty crazy system when you think about it. Banks will allow you to leverage up all your assets so that you can lend money to the people they wont touch.

  • Pham 6 years ago

    There’s very few defaults on these loans right now, so it’s not a problem. If you want to pay 10% interest rates and can afford it, go for it. It’s probably the same as rent, which is not recoverable in any way.

    • Mark 6 years ago

      There have been very few defaults for a few reasons. The first is the way they were reported/hidden previously, along with the 12 month turn around on stats. The more important one is that when a market is running hot defaults are always at their lowest because the house can be flipped immediately… now that sales are absolutely cratering we should start seeing many more defaults.

    • Bluetheimpala 6 years ago

      Correct. We are in the early stages. Rates will go up in July and October and potentially again in Q1…the issues isn’t that they “can’t afford it” right now but more so they will be stuck after one or two more rates increases of 25 bps or more, each. It isn’t getting better, it is only getting worse. 10% interest rate on an $800,000 loan is a shit ton..,.way more than renting. Thanks though muffin.

    • learn math dummy 6 years ago


      You should pick up the calculator before you rainbows and unicorns fly out your mouth when you speak about your optimisim.

      If 10% interest rate is applied to a mortgage. It would be way the fuck higher than rent.

      At todays rates, I did the math already at a house I looked at this weekend for 670k.

      heres your payments today. 3.29% fixed, with 130k down will be 2670 a month. (excluding property taxes which takes this even higher.)

      My rent today is $1950 a month.

      now with 10% that brings the montly payment to $4830 a month…. not including property tax we also have to pay.

      So basically thats more than double my rent if that happens….. means you are fucking WRONG!

  • Bluetheimpala 6 years ago

    Very peculiar feeling; laughing your ass off while simultaneously puking due to the nausea induced by this behaviour, For those wondering what it sounded like, kinda like a gurgle. Where my boys at? You know I’ve got to go on a rant about how this is going to implode and the severity of the impact rippling through bay street and main street, wiping out two generations simulataneously…instead I shall paraphrase Drake:

    Uncle Tony got a dope Benz, he got some liquid friends
    1st marriage pics, he was even reckless then
    He ain’t stressin’ with no offer in the past month
    He already had them, but not high
    Work at 8 A.M., finish ’round five
    Now he’s fucked and can’t survive

    He a poor one in his reflection
    Without a prime rate, without a mention
    Blue you really pipin’ up on these fellas
    You gotta, be nice for what, to these fellas?
    Blue undertsands. Gotta make that ass jump.


  • willy 6 years ago

    I’m also puzzled at how some experts analyze the facts so they come up with conclusions such as in the second half of the year the market will adjust to the new B-20 rules.

    Most bank and real estate experts said at the beginning of the year that the market would adjust in a few months or the second half. First of all I can’t understand what they mean by adjust and second if they mean the price will stall for a few months and then start going up again right after how is that possible when the purchasing power is reduced by 20%? How would buyers be able to save that 20% in difference in a few months on let’s say a 500 k house? Based on my calculations that would take years of saving money not months. Unless they consider most buyers haven’t already used their maximum purchasing power and there’s still room to over pay but according to some other experts the Toronto market in particular is over 50% overvalued compared to median wages so this means the maximum purchasing power have already been used by many if not most buyers.

    Any explanation guys for how the market can adjust in less than a year to a 20% reduction in purchasing power?

    • Obi 6 years ago

      Congrats on figuring out they’re trying to feed you bullshit. Short answer is it can’t. The buying funnel starts with the poorest buyers (condo), that push the whole chain higher.

      These buyers are less likely to be able to save 20% more or have their income rise by 20% in just one year. The probability of that happening is absurd to say the least.

      • Bob 6 years ago

        “The buying funnel starts with the poorest buyers (condo), that push the whole chain higher.”

        That is exactly wrong. The buying mania here was triggered 100% with offshore money driving marginal demand at the top. A single $8,000,000 purchase on the west side or West Van can trigger 6-10 other purchases province-wide that all serve to disconnect local RE markets from incomes. And after the buying spree, there is millions of dollars of money in peoples pockets, since all the locals were trading down.

        As the windfall money gets spread around, it is used to seed condo purchases for kids. How else do you think people are buying tiny $1,500,000 condos on $60,000 salaries? The whole thing starts with money that comes into the economy from ‘nowhere’.

        The real question is: precisely what level of demand is required at the top to keep the party rolling? It is all about this marginal demand. Is it 10 houses a year, 100, 1000? Unfortunately, our politicians never watched this number closely (In B.C. the transparency is so bad they have no idea who owns any particular property). They could have capped offshore ownership at a hard number (Denmark model) and managed the whole thing in a controlled way. Today, nobody knows what percentage of the RE here is already owned by offshore money, and precisely what amount of offshore money is needed per year to keep the party going (if that’s what they really want).

        • Bluejay 6 years ago

          @ Bob. Exactly. It all trickles down. Not only the offshore buyers started it, but also local developers. A grandma living in a prime-development location sells her her old bungalow to a developer for 4 mil. She buys a new house in another residential area for 3 mil and a condo for her granddaughter who is just finishing a college. A seller of the 3-mil house will buy a townhouse for himself, say for 2 mil, and a condo for his daughter. A seller of the said townhouse will buy a condo for himself for 1 mil and a smaller one for his daughter. The income of the buyers is totally irrelevant because in this scenario everyone is paying cash (or taking a tiny mortgage), easily outbidding folks who have typical income and typical down payment.

        • Bluetheimpala 6 years ago

          Holy shit Bob, did you and Einstein just get out of the Delorean from mid-2017…sorry to be a prick but we’re collectively about 9 months ahead of you. Too much to unpack and now I’m on the hunt for a shaggy dog and a silver coupe with gullwing doors. To answer your question quickly: None, there is no level of foreign demand at this point that can keep not only the music going but the same number of chairs available. It was all a combination of money laundering due to lax oversight, capital migration and yield as the stock market was just puttering along in the single digits. We are now tracking foreign money closer and the chinese government is basically regulating it for us, Xi is pissed with all of the capital leaving but not coming back so no more for the princelings, yields are shit so unless the wealthy are in the business of losing money, bye bye…long story short, go back to mid-2017 and warn everyone! Oh and buy Nvidia, MJ stock and Bitcoint but get out by mid-Jan 2018! BD4L.

  • AJ 6 years ago

    Please help me check this for Ontario in 2018 Q1
    2B$ private mortgage which equates to about 4000 sales at 0.5 B$ average mortgage origination per sale
    40,000 residential sales total
    That means 10% of all sales were financed using private sources!!!! Holy Cow

    • @xelan_gta 6 years ago

      Surprised nobody commented here. Good thinking AJ.
      I don’t have Ontario stats on hand but your estimation sounds about right. Ave price may be a little higher and sales as well but it still won’t reduce it below 8%.
      At the peak of US bubble it was about 20%

      • AJ 6 years ago

        Thanks Xelan
        Nice to have a reference to the US bubble. It’s amazing how desperate people are to get into the market that they make such irrational decisions.
        Wonder if the banks are being much more tighter with their lending standards in 2018 vs past years when the house prices were going up. Perhaps this is the sign of liquidity drying up. Wait for the inevitable recession and watch the GTA housing collapse!!!

  • Cash 6 years ago

    Any way to short any of these lenders? Particularly the mezz lenders with large exposure to the Vancouver market? The Vancouver market has definitely crashed and anyone saying otherwise, is delusional. Thinking contagion to the other markets will be material.

    • Matt 6 years ago

      You could short these: EQB.TO; MIC.TO; HCG.TO. Alternatively, you could short the TSX: HXD.TO

    • Bluetheimpala 6 years ago

      Find a private lender…offer to lend them collateralized/secure money with some sort of a debt to own structure and inflows quarterly based on a payment structure that ensure you’re always getting 60-80% of your money and grab a % of the assets or get 100% and you wait for the next quarter. Assuming the assets are not bunk with 2-to-1 or 3-to-1 value vs the loan amount (assuming housing does not depreciate into the pennies on the dollar a la southern Florida) you will make money. Take the cash flow and some of the underlying capital you have and work to hedge. Watch them fail and then sell the underlying assets. You’d probably need $10 million to make a run at it. As GG mentioned, these are usually short term loans a year maybe two at most. Anyone an 1.5 hours north of the City? A mansion in Palgrave/Mono at 9 and 7 has completely stalled (basement and framing, roof and windows so it doesn’t rot!) and I joked with my wife I should offer them funding and then just take their house in 6 months…but I’m just a guy and not savvy enough to lend my money privately. That would be nuts.

  • CJ Ray 6 years ago

    Been following and the same GTA view between April 6th and June 11th has gone from 15,697 listings to 20,046 today. I think the restless are starting to hit the market.

    • Bluetheimpala 6 years ago

      I chirp with agents to get perspective on buyer mindset. I won’t spoil the surprise and this is more or less anecdotal but wait for the fall when many sellers see their window closing and murmurs of wider economic issues. Pray.for.mojo. BD4L.

  • CJ Ray 6 years ago

    I have been following and the same GTA view between April 6th and June 11th has gone from 15,697 listings to 20,046 today. I think the restless are starting to hit the market.

    • Lessdanadalla 6 years ago

      It’s only a beginning … one can wonder what those numbers will look like in September & October.

    • Bluetheimpala 6 years ago

      Tick tock. BD4L.

  • Tommy 6 years ago

    Months of inventory in the GTA is now 3 months. That’s a full month longer than last month. If this is a trend, it’s going to get ugly very soon.

  • Mark Baum 6 years ago

    This documentary above sounds almost Exactly like Canada. It’s about the Irish boom and bust heading into 2008/09. An hour long but worth the watch or at least a listen

  • Mark Baum 6 years ago

    I noticed that out of the Big 5 Canadian banks:

    TD and BMO have the lowest exposure to residential real estate and its’ stocks are near all time highs.

    CIBC, Royal Bank, and Scotiabank have more exposure to RE and their stock performance this year has been mixed. BNS is at a one year low.


  • Rick Aurora 6 years ago

    After Canada has imposed the new stress test on Canadian buyers it has not only affected investors, it has also affected any other buyer that is looking to buy with less than 20% down payment.

  • Hamguy 6 years ago

    Still waiting on that redpin prediction. Ticktock

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