Teaser: The Private Lending Sector cruised through the COVID-induced insecurities of 2021.
Mirroring the trend in the Canadian mortgage sector in 2020, unlike some of the other business sectors in the Canadian business landscape, the private mortgage space has been in an upwards trajectory throughout 2021 with no end in sight.
As bank lenders continued to crack down on the criteria necessary for traditional mortgage approval, many turned their sights to private lending options to help fill the lending gap.
It is now a little harder to qualify for a traditional CMHC backed loan as the parameters were tightened further in 2021.
As the Government feared the possible increase in foreclosures or power of sales on properties due to homeowners being over-leveraged in their mortgage contracts, the gates closed somewhat to some homeowners that could not meet rigorous mortgage stress-tests.
These new barriers coincided with a good portion of the Canadian workforce pivoting to remote-based work and contract-based employment, which traditionally makes bank financing a little trickier.
As more and more Ontarians began to see the merits of working from home, attention turned to areas of their homes that may need a facelift, and some even took on major renovation projects.
Desperate to take out existing equity from their homes but unable at times to meet the stricter criteria for second mortgage options provided by the banks, more and more Canadians looked to private lenders to solve their immediate financing needs.
The total CPI inflation stood at 4.8% as of December 2021, according to the Bank of Canada.
Whether looking for more flexible lending terms, a greater variety of mortgage options or trying to obtain mortgage financing with hard-to-calculate contract or self-employed income, the private lending channel has widened throughout 2020 with a positive opening in the lending window as we progress through the first fiscal quarter of 2022.
Macro-Economic Housing Trends
Other trends became apparent as the year unfolded. Most of these factors were on more of a macro-economic scale. The ongoing pandemic had created a perfect storm for homebuilders across the country as it became evident that there was an increasing backup of building materials and supplies at major Canadian ports.
The price of lumber also increased along with the general increase in cost for building supplies.
With the need to build ground-up construction and address the housing shortage, investors were forced to look around for quick and flexible financing for either fix and flip projects with pre-existing homes or to finance the construction of new homes.
Fortunately, well-established private lenders provided some investors with flexible terms and relatively low associated interest rates to embark on property ventures and renovation projects.
Inflation also took root towards the final fiscal quarter of 2021. The total CPI inflation stood at 4.8% as of December 2021, according to the Bank of Canada. South of the border felt the inflationary pressures even more as the CPI hit levels not seen since 1982 by the end of 2021.
With many small to medium size businesses forced to shut down temporarily with repeated lockdowns, some were not able to recover. As a result, many homeowners felt the financial strain as 2021 progressed.
Fortunately, job losses, business shutdowns, reduced hours, and layoffs did not change the foreclosure numbers dramatically. According to the Bank of Canada, overall foreclosures in Ontario still sit well below 1% of all existing owned properties.
Property appreciation and private equity-based loans
As Canadians saw some of the biggest increases in property appreciation in recent years, with numbers routinely falling in the double-digit territory, the trend towards taking out increasing numbers of second mortgages based on the equity in their homes continued through 2021.
Also, those who may have faced economic hardship due to job losses or reduced hours, or even layoffs felt the economic pinch. By turning to equity, some of those short-term financial concerns could be lifted, and private financing provided many a quick and straightforward lending route to achieve their financial goals.
According to the Ontario Real Estate Associations numbers, towards the end of 2021, houses were selling on average with just nine days on the market and increasing by 18% year-over-year and higher depending on the desirability of the area. The highest increase in the selling point was seen in Toronto and the surrounding GTA.
Moving into 2022
With so many macroeconomic and domestic factors working in favour of private lenders, the outlook for 2022 is looking rosy.
Investor interest in private financing is on the increase as well as homeowners who would like to access equity quickly and painlessly to either increase the value of their home through renovation, consolidate debt payments or pay off the legal fees on a probable power of sale on their property.
We are all hopeful that the pandemic will finally be off our real estate and financial radars as we progress through the new year. In the meantime, well established private lenders are plentiful throughout Ontario to help homeowners with any financial concerns and goals they may have.
2022 should be a good year in both the mortgage and real estate sectors. Many people have suffered enough through 2021 with a pandemic that had us all holding our breaths until normal life can resume.