Amid a scarcity of viable financing choices, a growing number of Canadians are moving towards private unregulated lenders, even as the federal government is trying to rein in a home-price surge that has driven household debt levels to record highs.
But like a giant game of Whac-A-Mole, the risk to the financial system from tapped out borrowers is merely shifting – this time to a market where there’s no oversight from the country’s national bank regulator and new stress-test rules don’t apply.
“We’re transferring risk from the regulated segment to the unregulated segment of the market,” Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal told Bloomberg. “If we have a significant correction, clearly the unregulated markets will suffer even more because that’s where the first casualties would be. And then you will see it elsewhere.”
Mortgage broker Samantha Brookes agreed with the observation, saying that more than 90% of her business since November has been lining up funding from non-bank and private sources, or shadow banks, versus a 50-50 mix previously.