A boom in ‘B’ lending in Toronto’s mortgage market

There’s something about even the term of a ‘B’ mortgage lender that can elicit mild concern, which is natural, but knee-jerk: After all, ‘B’ comes after ‘A,’ so doesn’t it imply something second rate?

The truth is, mainstream lenders like the chartered banks aren’t for everyone. Their tight parameters can mean they’re less-than- perfect for whole swaths of society: If you’re self-employed, new to the country, or have a less-than- perfect credit history, you may not fit.

That’s where ‘B’ lenders come in, and they’re far from second rate. These kinds of lenders aren’t just ticking off boxes and saying ‘yes’ or ‘no.’ Of course they’ll look at things like past credit history, but the difference is, if you have something like a bankruptcy, they’ll want to know why and will take it into consideration.

A burgeoning market for B’s

According to a report in the Toronto Star, the borrower rejection rate from A lenders has gone up more than 20 percent since the Bank of Canada imposed a new higher-rate “stress test” for homebuyers who don’t require mortgage insurance.

That’s meant a boom for the B lender industry, and the trickle-down of a quality of clientele it’s not used to seeing. “A lot of these people should be bankable,” or able to get mortgages from the big banks, said Hali Noble of Victoria, B.C.-based Fisgard Asset Management Corporation. But with the new regulations, “they’re not.”

Realtors need to know the new market

With B lenders accounting for larger swaths of the market as big banks tighten up, that significantly increases both their profitability and their presence in the marketplace. With the market slowing in the GTA — down 35 percent from this time last year to now — that’s a simple reality that realtors need to embrace to keep their businesses moving forward.

That means that realtors are going to need to be creative to make sales in this market. Major lenders have significant barriers for most home buyers that weren’t there a year ago — that’s just a reality.

But realtors who know the options and can adjust to the shifting lender market are still in a position to profit. Particularly those who work to establish direct relationships with alternative lenders rather than with mortgage brokers – realtors who do this may be able to avoid the substantial fees of brokers, which can add to the costs incurred by the buyers.