A for sale is sign is displayed in front of a house in the Riverdale area of Toronto in September, 2021.Evan Buhler/The Canadian Press
Bank of Montreal BMO-T has tightened mortgage lending rules for self-employed Canadians in several industries that are vulnerable to U.S. tariffs, a move that critics say adds new obstacles during a period of economic uncertainty.
As of March 19, hundreds of thousands of self-employed Canadians working in the steel and aluminum space, along with nine other “high risk” industries that BMO believes could face a “turbulent economic landscape,” will find it tougher to secure attractive lending rates as a result of U.S. President Donald Trump’s levies on Canadian exports.
BMO’s guidance to external mortgage brokers warns that entire categories of the economy – construction, transportation, leisure/entertainment, retail sales, banking/finance, manufacturing, farming/natural resources, wholesale trade and utilities – are on its “Limited Appetite treatment list.” Self-employed people in those trades will see tougher qualification rules and less credit extended to them, the bank’s memo says.
“To broad brush it like that, it boggles my mind. Especially right now when we’re all feeling Canadian and very proud,” said Trevor Daly, a mortgage broker with 25 years experience (formerly with Dominion Lending Centres).
According to mortgage experts, the likely impact of BMO’s change will be to shrink the size of a mortgage available to self-employed Canadians in the affected industries. The bank’s memo warns it’s lowering the total debt service (TDS) ratio to 42 per cent from 44 per cent.
In other words, applicants must show that all their spending obligations – everything from car loan and mortgage payments to property taxes, utilities and some condo fees – will only eat up 42 per cent of their income.
Consider the average price of a detached home in Toronto is $1.45-million: with a down payment of 20 per cent, a monthly mortgage payment could be more than $6,096. When adding in monthly property taxes ($864), an average heating bill in Toronto ($150), the monthly payment on the average Canadian’s credit card debt ($127) and an average monthly car payment ($500), the TDS for a household with $200,000 of income would be 46 per cent – well above BMO’s line.
To lower the mortgage payments to $5,350 – a level that would give the applicant a 42-per-cent TDS – they’d have to find a house in Toronto that costs almost $200,000 less, closer to $1.27-million.
“It’s kind of disappointing in a way that a major bank would decide to pile on at this time,” Richard Lyall, president of industry group RESCON, which represents residential home builders in Ontario. “There’s people who are self-employed who are financially sound. If people are going to be denied credit by virtue of the industry they work in, it’s just not right.”
According to Statistics Canada, there were 2.6 million people self-employed in Canada in 2023, about 13 per cent of the working population. The largest category was in agriculture, where farmers and other farm workers make up about 36 per cent of the self-employed (more than 278,000 people); followed by construction, which makes up about 17 per cent (148,000 in residential home construction alone).
Some common jobs in large self-employment sectors include truckers in the transport sector (74,000 people), and accountants and mortgage brokers in the finance sector (64,700 workers).
“It is very common practice for financial institutions to consider a wide range of macroeconomic factors – including industry types – when evaluating loan applications,” said Jeff Roman, spokesperson for BMO Financial Group.
The bank’s memo “doesn’t apply to employees of companies and is only one of many factors when considering the applications of self-employed applicants. Each customer’s situation is unique and personal, so loan applications are always considered individually.”
Mr. Roman also noted that “all home financing loan decisions are made on a case-by-case basis.”
Critics suggest BMO’s claim that each borrower will be judged on their individual merits is in conflict with a policy that blankets certain “high risk” industries.
“They are irreconcilable, those two notions” said Geoff White, Executive Director and General Counsel for The Public Interest Advocacy Centre, a consumer advocacy group in Ottawa. “If you’re in a category, that’s an automatic differential treatment. Especially when we’re in this weird geopolitical moment, we should have more lenience toward people trying to make a go of it.”
Others say there is a business argument in favour of slowing credit to those facing tougher economic times.
“I don’t think it’s realistic to think when businesses who extend credit see increased risk that they aren’t going to trim their sails,” said Dave Larock, president and broker with Integrated Mortgage Planners. “I’m all about Team Canada and ‘elbows up,’ but we don’t want our banks to fail.”
Mr. Larock also said that while BMO may have put their policy in writing, he is “under no illusion” that the other major banks aren’t acting on similar policies.
The Globe and Mail reached other members of the Big Five banks – TD, RBC, CIBC and Scotiabank – but their spokespersons declined to comment on whether they are changing lending rules for industries in the crosshairs of the trade war.
