OTTAWA (Reuters) - The market share of private mortgage lenders in Toronto has increased since 2017 as Canadian regulators tightened rules for home buyers, but the volume of private lending is stable and growth prospects are limited, the Bank of Canada said on Thursday.
In its Financial System Review, the central bank said the migration of mortgage lending from Canada’s big six banks warrants monitoring, but said the volume of private lending has been stable for the past year in Toronto, Canada’s largest housing market.
While the market share of private lending has climbed to nearly 8 percent of new mortgages in the Greater Toronto Area, the increase is largely because lending by the big players has declined, leaving the volume of private lending flat at a little more than C$2 billion per quarter.
“This (market) share overstates the importance of private lenders, however, because their loans have shorter terms compared with those of other lenders,” the bank said in the report.
To increase their activity, private lenders - who include mortgage investment corporations (MICs) among others - would need to develop their lending channels and operational capabilities, and “materially expand their funding sources,” the bank said.
The rise in the use of alternative lenders, who can include wealthy individuals looking for higher returns than offered by traditional investments, has caused some concern that borrowers have shifted to unregulated mortgage providers to avoid the tighter qualification rules imposed by regulators.
“This could make the new guideline less effective in mitigating the vulnerability for the financial system as a whole,” the bank said, adding it is waiting for second-quarter data to help its understanding of the shift.
Separately, it also noted a 5.5 percent rise in Canadian auto loans in 2017, even as the pace of mortgage borrowing and other consumer debt has slowed. Auto loans represent about 40 percent of consumer credit outside of mortgages and home equity lines of credit.
While Canadians are taking longer to pay down their auto loans, there are few signs that borrowers are in trouble. The share of loans going to non-prime borrowers has remained stable at roughly 22 percent, and the rate of arrears for those loans also remains modest, with only a slight increase to 0.9 percent from 0.7 percent over 2017, the bank said.
Reporting by Andrea Hopkins; editing by Leah Schnurr