More and more private lenders are coming to the rescue of families who cannot get money from banks to buy a house. According to the Canada Mortgage and Housing Corporation (CMHC), these “alternative loans” have increased by 63% in two years.
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“We’re seeing more and more of it. We just helped a small family,” says Chantal Garceau, director of Financement Canbec, which provides personal loans.
“You would have lost the money you invested and the house. Where would they have gathered afterwards? she wonders out loud. Without this second mortgage, the family would no longer have their home because they have a 60-day notice hanging over them. They received the money at an interest rate of 15%.
These offers have exploded in recent months. A search on Kijiji returns more than 23 results. On Google, ads are crowded at the top of the page. They are trying to attract new customers who have simply been kicked out by the usual, more cautious financial institutions.
“It is popular because banks demand higher returns than before,” summarizes private lender Saeed Hashemi.
“We must always keep in mind how we can repay the loan over time,” emphasizes François Bélanger, President of Belabri Capital.
François Bélanger, President of Belabri Capital. Provided by François Bélanger
For Raymond Prince, president of Société RP & Associés, private lending has been democratized.
“There are many borrowers who have lived beyond their means. Banks are afraid to give out loans,” he says.
Raymond Prince, President of Société RP & Associés. Provided by Raymond Prince
“We are often a bridge between two transactions,” he explains.
The elastic band stretches
Although this type of loans remains marginal, rising from 4.1% of loans in the third quarter of 2021 to over 6.7% in the same period, they have increased in Quebec two years later, according to CMHC.
“Alternative lenders have expanded their market share both in the segment of newly issued mortgage loans and in currently repaid mortgage loans,” confirms their spokeswoman Claudie Chabot.
According to Pierre Fortin, president of Jean Fortin et Associés, due to successive tariff increases, the range has widened even for those who have the same standard of living as before.
Stick to the tariffs
For example, a family with a gross income of $100,000, a mortgage of $350,000, a margin of $10,000 and a credit card of $5,000 can get by “without adding a penny of debt,” says Pierre Fortin.
“Before the pandemic, this family had a debt ratio of 34%, good to very good. Today it would be 42%, very close to the limit,” he explains.
- Listen to the interview with Francis Halin, journalist at the Journal de Montréal, on the microphone of Richard Martineau QUB radio :
For Johanne Le Blanc, budget consultant at Option Consommateurs, you need to be careful before committing too quickly.
“The person submits the application and an hour later finds themselves in the office signing. “It’s quick,” she says. It is better to read the contracts carefully and not rush into anything so as not to get into trouble later.
Explosion of demand
We are also seeing increasing demand at Alepin Gauthier Avocats et Notaires.
“For banks, it’s not just the debt ratio and the credit rating that play a role, but also the speed. “There are people who want to go quickly,” analyzes Chanel Alepin.
Chanel Alepin of Alepin Gauthier Lawyers and Notaries, provided by Chanel Alepin
“There are people who are very serious and others who are a little more worried,” she breathes.
In the Journal, Olivier Boyd, MNP’s authorized insolvency practitioner, reiterates that he also senses overheating. He believes these loans can be beneficial if used wisely.
“The personal loan can be 10%, 12% or 15%, but sometimes 22%, 23% or 24% is needed to pay off credit card debt,” he says. So it may be worth getting your head above water.
“The problem is that you shouldn’t use your credit to take on more debt,” he concludes.
–In collaboration with Ghislain Larochelle, Nicolas Brasseur and Sylvain Larocque
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