The lender of last resort may be no longer, at least not for condo clients, as B lenders pull back from financing owner-occupieds, amid fears of a correction.
“If a borrower can’t find an A lender to offer a second or refi on their mortgage, they’re likely not going to find a private to do it anymore – at least not at a rate they would find acceptable,” said Yan Gurevich, owner of Verico Mortgage Canada in Toronto. “But they may not find a lender to take it, period.”
The comments are backed up by a growing number of seasoned specialists who have seen some alternative lender as well as privates pull back from condo lending in key markets.
Fears about a correction, especially in Toronto, have precipitated the collective move, although several lenders continue to offer financing, having reduced their maximum loan to values on condo financing.
“Some institutional alternative lenders moved months ago to cut the maximum LTV to 80 per cent on condos,” Gurevich told MortgageBrokerNews.ca. “If a private lender is willing to take it, It’s usually now for 75 per cent.”
Pressure from the federal government and the loss of CMHC portfolio insurance forced many broker channel lenders to abandon or slash their rental programs in the spring. While that effectively cancelled their involvement in the condo investment market, owner-occupying clients buying or already living in condos were exempt.
That has largely changed as lenders grow increasingly convinced that chiefly the GTA and Vancouver are cruising toward as much as 15 per cent correction in their condomium sectors.
Still, recent analysis suggests even the big banks may soon have a change of heart.
The full brunt of a correction won’t likely be felt for few years, said TD economist earlier this week, and not the more-immediate correction some bank economists predicted for late 2012.
This week’s quieter alarm bell comes amid fears that the Canadian economy is likely to remain stagnant over the next six months as Europe grapples with a debt crisis now spread to Spain.
The concern is those external forces will continue to tamp down on interest rates, essentially encouraging more Canadians to add to near-record levels of debt.
It also means that the kind of correction TD predicts will likely be put off until the cost of money increases. There’s growing indication that the Bank of Canada won’t make a move to raise its own overnight rate until next year.
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