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The average value of a non-bank mortgage fell 7 per cent to $246,802 in the second quarter from the previous period.

Deborah Baic/The Globe and Mail

Alternative mortgage lending jumped in the spring of last year, according to new data from Statistics Canada, as the country’s housing market started to rebound after a slowdown caused by stricter mortgage rules and rising interest rates.

Mortgages from credit unions, private lenders, mortgage investment companies and other alternative lenders increased 25 per cent to $41-billion in the second quarter of 2019, compared with the first quarter, according to Statscan’s survey of non-bank mortgage lenders.

The growth coincided with the spring season, typically a busier time for home sales. (The numbers are not seasonally adjusted.) It also occurred as the country’s real estate market started recovering after the downturn in 2018, when the government’s tougher mortgage rules came into effect and the Bank of Canada raised interest rates three times.

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In February, 2019, home buying across the country reached its lowest level in years, according to the Canadian Real Estate Association. Sales started picking up in March and accelerated over the latter half of last year.

Sonya Coward, a Statscan senior economist, said there was a similar trend among mortgage lending from the banks.

The average value of a non-bank mortgage fell 7 per cent to $246,802 in the second quarter from the previous period. Statscan said increased sales in lower-priced properties such as condominiums and townhouses could have accounted for the smaller mortgages.

Over all, mortgage brokers say alternative lending has become more popular since Ottawa introduced its mortgage stress test that requires borrowers to prove they can make their loan payments at a higher interest rate. The rules, known as B-20, require borrowers to qualify at a mortgage rate that is two percentage points above the going rate or to qualify at the Bank of Canada’s five-year rate, whichever one is higher.

That has made it harder for potential home buyers to get a mortgage from a bank that complies with B-20 and pushed some Canadians to non-bank lenders for their home purchases.

“There is a direct correlation between B-20 and that trend,” said Benjamin Tal, deputy chief economist with CIBC. “In some ways, we are transferring risk from the regulated segment of the market to the less regulated segment of the market,” he said.

The Statscan survey suggested that borrowers are making their payments on time. The total number of mortgages in arrears more than 90 days decreased 12 per cent to 3,656 in the second quarter from the previous period.

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The Finance Department, the national housing agency and federal banking regulator are examining ways to improve the stress test, including whether it should still use the Bank of Canada’s benchmark mortgage rate.

This is Statscan’s third non-bank mortgage lending survey, which was introduced to provide a more comprehensive view of the country’s residential mortgage market. It was introduced “in order to fill an existing information gap,” Ms. Coward said. Previously, non-bank mortgage lending data were haphazard. However the Statscan data are new and the only comparable numbers are from the first quarter of 2019.

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