TORONTO–The country’s credit unions and other smaller lenders are making some headway into this country’s mortgage market, 80% of which is controlled by Canada’s Big Six banks.
The growth is coming in the wake of a move by the Bank of Canada to suddenly and sharply raise rates to qualify for home loans.
Credit unions' mortgage balances increased 4.1% between March 31 and June 30, when the bulk of the Bank of Canada's interest rate increases took place, according to data from the Canadian Credit Union Association cited by Reuters.
“That was the fastest pace since at least the start of the pandemic,” Reuters said. “That compares with 2.6% growth at the Big Six banks, according to data from the Office of the Superintendent of Financial Institutions.”
This is the first time at least since the pandemic began that credit unions' quarter-on-quarter mortgage growth outpaced the big banks, according to Reuters.
More ‘Rate Shoppers’
"We're seeing a lot more rate shoppers, so we're seeing a lot more inquiries," Pippa Nutt, chief marketing and member solutions officer at DUCA Financial, told Reuters. The report noted DUCA Financial has seen a 300% increase in loan growth in June from the previous year, and 27% from the prior month.
The Bank of Canada has so far this year increased rates by 300 basis points, a 75 basis-point hike last week. That has lifted the minimum qualifying rate for the biggest banks' mortgages, set by regulator OSFI, reducing the amounts borrowers can access and leading some of them to seek alternatives, Reuters reported.
That's good news for credit unions, which hold 14% of outstanding Canadian mortgage, the report added.
“Most credit unions…are not subject to OSFI's stress test, but they do have similar, albeit sometimes less stringent, regulations set by provincial regulators,” Reuters reported.
CUs Consider Other Factors
Michael Hatch, VP-government relations at the Canadian Credit Union Association, told the news outlet credit unions can take into account factors that the big banks may not consider, including variable income for self-employed borrowers and those who have stable income now but may have a limited or checkered credit history.
“Modest credit quality deterioration is widely expected across most lenders as consumers grapple with higher living and borrowing costs following a period of exceptionally low interest rates,” Reuters said. “But unemployment at historical lows makes mass defaults.”