On June 5th, Canada became the first G7 nation to reduce interest rates and followed that precedent-setting move with another 25-basis point decline on July 24th. While monetary policy remains in restrictive territory, capital markets believe there is more rate relief to come. Meantime, CMHC announced significant changes to its policies, some of which came into effect in June and another to follow in September.
In light of this dynamic environment, I’m writing to amplify a point Jeremy Wedgbury made in his note to you last week now is an opportune time to consult with your First National advisor on future financing plans and the implications of insured program revisions. As a member of First National’s Ontario-based advisory team, I believe there are three key reasons to do so.
1. New CMHC rules create new opportunities but also challenge past practice.
Prior to announcing incentive program changes, CMHC provided the best options for financing multi-unit construction projects. After these recent revisions, the same holds true but it is now necessary to contemplate how the shift will affect your plans. For example, CMHC has broadened its definition of “new construction” to include existing structures. MLI Select’s scoring system has been tweaked to emphasize affordable rental housing construction, although points for energy efficiency and accessibility remain. CMHC Market loans now offer up to 50-year amortizations (previously only available with MLI Select). And starting September 3rd, lender correspondents will not be allowed to submit MLI Select applications directly.
Navigating the evolving universe of CMHC program requirements is something our team does every day. Using First National to guide you and advocate for your interests with compelling business case submissions to the national housing agency has never been more important or necessary to set you up for greater success.
2. As financings grow in size/complexity, the need for a sophisticated approach increases.
For various reasons, the average size and complexity of projects and their financing have significantly increased. We see this in our loan book. In the first six months of 2024, our advances in Ontario were approximately 60% higher than the comparable period in 2023 despite roughly the same number of transactions closing. With a surge of new business coming our way here and across Canada, First National became the first non-bank lender to surpass $50 billion in commercial mortgages under administration in March.
By their nature, larger transactions are complex and require greater underwriting expertise to ensure maximum loan proceeds are received on the most favourable terms. First National recognizes this reality and has added key resources to our Ontario team to ensure we can thoroughly and quickly assess proformas, research/justify market comps, and model different financing strategies to secure the very best results, no matter how large or complex your project.
3. Current monetary policy supports a more confident investment outlook and a possible return of more trading activity.
With key measures of inflation moving in the right direction, bond markets are expecting to see additional interest rate cuts later this year. Although the path to lower rates is uncertain in terms of timing and magnitude, there is a psychological impact attached to incremental monetary policy changes like this that should boost investor confidence and ignite asset trading activity, which has been weak in recent months.
Here at First National, we’re starting to see evidence of a shift. Our original market forecast for the second half of 2024 was relatively modest. Instead, current funding commitments, particularly for new construction projects suggest that this will be a busy fall season.
Our team is certainly geared up for strong volumes and to its credit, CMHC has also added resources to expedite adjudication. But with an improving outlook, it pays to strategize with your First National advisor early so that we can in turn submit your application well before funds are required. And remember: with deep sources of liquidity, we can also offer short-term bridge loans to keep your projects moving forward as your application awaits adjudication.
It also bears noting that our interest rate hedging programs remain a great backstop against bond market volatility and the ever-present risk that the Bank of Canada defies market speculation.
Better Lending here in Ontario
We look forward to doing our part to help you address the urgent need to add more rental housing stock across the province. As a lender, we are proud to operate with boots on the ground in Ottawa, Kitchener, Guelph, the Golden Horseshoe, the Greater Toronto-Hamilton Area and southwestern Ontario (where I’m based).
Which brings me to a personal acknowledgement. In April, I celebrated my first anniversary at First National. Choosing to join what I consider the very best commercial financing team in the industry – a growing team devoted to delivering Better Lending solutions to you – was the best decision of my 25-year career.
Should you wish to take us up on our standing invitation to consult on CMHC changes, local trends in rental rates and property values and the rewarding incentives available to support your next project, please contact your First National advisor today.
Sincerely,
Scott Mizzen
Regional Vice President, Commercial Financing, Ontario