Many of Those Turning To Private Lenders Are Notably Self Employed

In Toronto, the amount of people turning towards private lenders is growing, fast. It’s important to note that among these people, many are self employed. This is often because those who are self employed struggle far more to prove their income. This is in contrast to the usual reason as to why many seek private lending (stress tests, poor credit scores, etc.).

According to Dan Caird of Dominion Lending Centres, “There’s more and more people seeking private loans than ever before and that’s a direct result of government making it more and more difficult to qualify…”

Since 2015, the share of the mortgage market that private lenders take up has doubled. As of 2018, this accounts for eight percent of mortgages.  These statistics come from the Bank of Canada.

These private lenders are concerned about the value of the property rather than income. This is because foreclosure is a serious issue among housing markets. The tradeoff in this case is that higher interest rates and raised fees are ever so present.

The option of going with a private lender is notably helpful to those who have bad credit scores, as well as the self employed who wish to limit the amount of taxable income they obtain.

According to Caird, “Sure you’re going to pay half a percent, a percent, sometimes two to three per cent more on your mortgage but… they usually end up coming out ahead by claiming less income and just paying a bit more on the mortgage…”

According to Robert McLister of RateSpy.com, “Assuming a self employed borrow had great credit and ample equity, we used to be able to simply state their income to the bank and show a notice of assessment to prove no taxes owing…”

Now, the government makes proving your income very hard for the self employed. They want verifiable proof of annual earnings, and the stress test currently in effect makes it no easier to prove.

According to McLister, “Self employed mortgages without traditional proof of income are a different animal from your cookie cutter AAA bank mortgage…”

According to the Canada Mortgage and Housing Corporation, an ease of paperwork in regards to loan insurance is currently being undergone.

According to Staresina of Ottawa, “Our aspiration really is to make sure everyone in Canada has a home they can afford and that meets their needs…”

“We know self employed Canadians make up about 15 per cent of Canada’s labour force and so we want to make sure that any difficulty that they have in qualifying for a mortgage is mitigated and that we’ve got some options for them…”

According to Caird, there have been some steps in a beneficial direction. New products from the Bank of Nova Scotia allow companies (incorporated) to utilize retained earnings in such a way that would aid applicants in their qualification process.

It’s important to note, for all Canadians, that just because your credit score may be far from great, you can still get a loan. There are still viable options. However, this does not come without cost. A cost you should be prepared to pay.

Ownership and Renting, The Canadian POV

Against all odds, the majority of those living in Canada still believe that the benefits of owning a home far outweighs that of renting one. Canada is home to several massive housing markets, all of which are seeing sky high price points. Many predicted that this would lead to rent being the preferred choice for home seekers, but according to RBC’s annual Home Ownership poll, only 34% preferred renting.  An astounding 66% chose ownership to be of their preference.

According to the poll, one in four Canadians, or 25% of the population, are suffering from the lack of affordability in Canadian housing markets. Prices may have fallen this year, but they’re still extremely high compared to that of the early 2000s.

The report by RBC (in association with the poll) notes that those suffering from the lack of affordability are known to be “house-poor”. The report defines the term as  those who spend nearly half of their annual income on home ownership expenses.

According to the report, “While nearly all Canadians (92%) admit that mental stress is a potential impact of being house poor, almost half (47%) say it’s worth the sacrifice…”

The results of the poll indicate that many would actually wait up to two years before buying a home. Due to the shift in the real estate markets of late, many believe we may see falling prices.

It’s important to note that residents in B.C. and Ontario expect the pricing in Canadian housing markets to drop, and are perhaps the most hopeful of all Canadian provinces.

The New Dynamic of the Housing Market

For the past five years, many Canadians have felt that the relationship between the buyer and the seller has been strained. Now, as of 2019, many Canadians feel as though that relationship is finally at peace. There is  a new found balance between the two positions.

It’s important to note that the individual factors of home buyers have changed as well. 28% of homebuyers rely on help from close relatives, which is nearly the same as those who don’t (32%).

“We’re seeing a fundamental contrast in who’s at the buying table… There is a surge in confident, in-control solo homebuyers and, on the polar opposite end, those who are saying the can’t do it alone and need the assistance of family,” states Nicole Wells,  Vice-President of Home Equity Financing at RBC.

Important Notes From The Survey Done by RBC

47% of possible future home buyers are willing to spend  up to 15% on down payments.

Canadians are in good health with respect to the ability to survive a potential downturn in housing affordability.

Affordability and safety of the neighbourhood are the two most important factors to home buyers.

The majority of Canadians (80%) believe that purchasing a home or condo in high value real estate markets is a great investment.