Customer Expectations in the B Lending Space: What Clients Need to Know
It’s been a while since a single event changed the lives of so many Canadians, and 2020 has affected employment and finances for thousands, perhaps millions, of people. This likely means mortgage brokers are going to see more mortgage applications with interrupted or lower incomes, higher debt servicing ratios and even lower than normal credit scores.
This is exactly when alternative lenders (or B lenders) may be the best option for your clients; they look beyond the numbers to the circumstances that created those numbers. So how do you help your clients understand why alternative lending may be a good route for them?
Reassure your clients about alternative lenders
If your client needs to look at alternative lenders to secure a mortgage, they may be feeling a little down about their situation. If your client is not familiar with the term, alternative lending may have a negative connotation. This is your opportunity to explain that alternative lenders are more flexible than the big banks, have a deep understanding and appreciation of a broad range of clients and their histories and can help more people get the mortgages they need.
Reasons a B lender is recommended to some clients:
- Your client may have a lower credit score than the big banks will accept. This doesn’t mean they are a credit risk. In making decisions about approving mortgages, alternative lenders will look at the reasons behind the score. The recent pandemic is a perfect example of how circumstances can cause a temporary blip in an ordinarily good credit history.
- Alternative lenders are also more experienced and accepting of non-traditional and self-employment income.
- Thanks to the pandemic, some people may be carrying more debt than they usually do. Alternative lenders are more flexible with debt servicing ratios, which can help clients get that mortgage.
Questions clients may ask about alternative lenders
If clients pepper you with questions about standard mortgages, imagine how many more they’ll have about alternative mortgages. Here are a few answers you can have prepared:
Is an alternative mortgage risky?
Your clients are probably wondering if alternative mortgages are just as safe as a mortgage with one of the traditional banks. Yes, they are. Reputable alternative lenders are regulated, just like the big banks.
If mortgage rates go up, will I be able to afford my payments?
You can’t predict the future, but you can explain the likely scenario to your clients. Alternative mortgage terms are intended to be short—usually one to three years. During this time clients can start rebuilding their credit and renew at a lower rate when their term is up for renewal.
Current mortgage rates are so low that the alternative lender’s slightly higher rate is still very affordable, even when the lender applies the mortgage stress test. When your client’s term is up for renewal, chances are good they will be able to negotiate an even lower rate.
This is a key difference between regulated alternative lenders and private lenders. Regulated alternative lenders must follow the federal guidelines, such as the mortgage stress test, put in place to protect Canadians applying for a mortgage. An alternative lender won’t approve your client for a mortgage they cannot afford. Private lenders have no such restrictions placed upon them, and they can provide someone with a mortgage they can’t really afford.
This is also a good time to talk about Why Mortgage Payments Matter More Than Mortgage Rates. You can demonstrate that their payment over this short term will not be significantly different than if they had a lower interest rate.
Am I being approved for something I can’t really afford?
No. Alternative lenders verify income and look at debt ratios, just like the big banks. However, alternative lenders are more accepting of non-traditional sources of income and self-employment. They also accept higher debt servicing ratios under the right circumstances. Even so, these lenders are not going to approve you for a mortgage they know you can’t pay. They’re just a bit more flexible than the big banks.
Here’s why. Your client’s mortgage will be financed at a slightly higher interest rate than those offered at the big banks. Big banks won’t take on certain types of risk, such as higher debt servicing ratios, and tend to be quite conservative in evaluating creditworthiness. Alternative lenders price mortgages according to the risk. A slightly higher rate helps balance the risk and still gives mortgages to people who deserve homeownership.
The upside is that your client gets their mortgage and the opportunity to build their credit (if they need to) and equity in their property.
We’ve also sourced some informative articles about alternative lending:
- When You Might Need an Alternative Lender Mortgage
- Alternative Lending & Mortgages Explained and How to Reduce Client Concerns
- Self-Employed Mortgages
Bridgewater Bank is always ready to explore options for your clients. Contact us and one of our underwriters or business development managers can help you find solutions for your clients.