The Home Capital Group is taking business from larger Canadian lenders including Toronto Dominion Bank and the Canadian Imperial Bank of Commerce, as these lenders are backing away from the non-prime mortgage market that’s currently worth in excess $200 billion.
Since the Bank of Canada governor, Bob Carney, warned household debt is reaching record levels, banks have become much more cautious over taking on additional debt, especially as Carney has indicated interest rate rises would help cool off a housing market that has seen prices rise spectacularly over the last decade. Prices in some cities have nearly tripled during the last ten years. But it is almost inevitable that interest rates will begin to rise, and they could increase as soon as next year.
Toronto-based Home Capital has been targeting those borrowers who fail to qualify for mortgage loans with the large lenders. These include the self-employed and recent immigrants to the country who haven’t had time to build up a credit history. These borrowers are not necessarily a huge risk, as many have good incomes but just have circumstances that are a little different from the norm.
Even as banks begin to scale back on lending, there are signs the housing market is beginning to cool, as prices fell by 1.7% in March compared to February, with prices in Vancouver falling by 3.1%. The Finance Minister, Jim Flaherty sees this price correction as being a good thing, as it is preferable for the market to correct itself without government intervention.
At the end of March TD Bank stopped issuing non-prime residential mortgages, but these mortgages only represented a tiny 0.2% of the bank’s mortgage portfolio. Apparently the bank took this decision as they didn’t wish to increase their risk profile. This is obviously good news for lenders such as Home Capital, and the company has already had a very good first quarter.