Mortgage rule changes could lead to growth in shadow banking: experts
TORONTO — Sweeping changes to Canada’s mortgage lending rules could push more borrowers into the unregulated, shadow banking segment of the market, creating a new pocket of risk in the financial system, industry insiders say.
“If you tighten rules and raise the bar on getting a mortgage from financial institutions, it may prompt a number of borrowers who are being shut out to deal with lenders that are in the less regulated space,” said RBC senior economist Robert Hogue.
Alternative lenders have seen massive growth in recent years as Ottawa’s efforts to cool the scorching real estate market have left some borrowers unable to secure mortgages through the traditional means.
On Monday, Finance Minister Bill Morneau went further, announcing an array of fresh changes to the mortgage market, including a requirement that all insured mortgages undergo stress tests to determine whether the borrower will still be able to make their payments if interest rates rise.