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Framers work on a new house under construction in Airdrie, Alta., on Jan. 28.Jeff McIntosh/The Canadian Press

Fisgard Asset Management Corp. has suspended residential construction loans in Ontario, British Columbia, Alberta and Manitoba, becoming the latest subprime mortgage lender to hit pause this year.

The Victoria-based Fisgard, as well as other alternative lenders and the chartered banks, had all seen demand grow for their mortgages during the pandemic’s real estate boom.

But with borrowing costs soaring and the Bank of Canada on track to raise interest rates again in a bid to halt inflation, the residential real estate market has slowed significantly.

Fisgard is a mortgage broker, asset manager and Mortgage Investment Corp. It pools investor funds to provide loans and is not subject to the same restrictions as chartered banks.

The company is continuing to provide mortgages to homeowners who don’t qualify for a home loan from prime lenders such as banks, which typically have the lowest mortgage rates and lend to the most credit-worthy borrowers.

However, Fisgard has suspended its construction loans, which are provided to small-scale builders, renovators and homeowners to develop small residential projects. According to documents on its website, the product is “temporarily unavailable” in Ontario, Manitoba, Alberta and B.C.

Fisgard’s website does not say when it will resume construction financing or provide the reason for why the financing is on hold.

“We don’t have a comment about a suspension of construction financing as it was very temporary and had nothing to do with external market conditions,” Hali Noble, Fisgard’s senior vice-president of residential mortgage investments and broker relations, said in an e-mail. The company would not comment further.

Fisgard is one of the country’s oldest alternative lenders. It was established in 1994 and named after the historic Fisgard lighthouse on Vancouver Island. Its website says that the lighthouse symbolizes security, stability and vision, which are qualities the asset manager says are important to its investors.

Laura Martin, chief operating officer of mortgage brokerage Matrix Mortgage Global, said it is unsurprising that Fisgard has suspended construction loans given that property values have dropped between 10 per cent and 15 per cent since March. If a lender agrees to finance the construction of a property up to 75 per cent of the projected value, and that value drops by 10 per cent to 15 per cent, there is a higher risk that the lender will not get paid back fully when the builder sells the real estate or tries to refinance with another lender.

“Based upon the number of market pressures such as record inflation, possible recession and value corrections in the secondary real estate markets, a private-equity pullback is to be expected,” Ms. Martin said.

Another established alternative lender has also slammed the brakes on lending. Magenta Capital Corp. suspended new residential mortgage applications until September – an unexpected move for a lender that had grown rapidly over the past two years.

Magenta has said its decision to reduce its lending was “solely a function of our finite lending capacity,” and that it was “not connected to the perceived softening of the broader real estate markets.”

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