Shadow mortgage market is now 10% and growing

Toronto, July 31 (CINEWS) Low interest rates is pushing more buyers into the market than ever before, real estate prices are increasing and banks have tightened lending guidelines forcing those who cannot qualify for a bank mortgage to seek out mortgages in the shadow market and pay interest rates anywhere from 10 to 35 lenders
As a consequence of historic low interest rates, many investors are finding that investing in stocks and banks aren’t getting them the kind of returns compared to the sizzling real estate market. So they have taken to financing home buyers in the shadow market and they are making a killing charging their clients usurious interest rates.
Now the home buyers know they are being gouged but go along because they are counting on making a killing on their homes if and when they flip it. A worrying number are carrying two and even three mortgages.
But what happens if prices of real estate fails to rise in keeping with their expectations? Many would be forced to foreclose their homes.
The shadow market is estimated to comprise less than 10 per cent of Canada’s mortgage market, a much smaller proportion than the 30 per cent estimated for the pre-crash U.S. market. But the prolonged low-interest environment — by encouraging more people to rack up debt. It could ruin the financial system.

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