Hitting the housing wall: Newcomers navigate credit challenges with rental guarantee services, but they come with a price

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by Shilpashree Jagannathan
Local Journalism Initiative Reporter
New Canadian Media

Newcomers with no credit history in Canada are turning to rental guarantee firms in their bid to find housing, increasing their monthly shelter costs by up to five percent in an already red-hot rental market.

In their search for rental housing in Canada, newcomers face landlords’ expectations of a credit history — a requirement that typically takes six to eight months to build with a bank-issued credit product. While various banking and financial institutions are devising ways to accommodate the credit needs of newcomers, rental guarantee services help to mitigate these challenges within the rental market.

The services aren’t free; companies charge as much as five per cent of the monthly rent, but they can be helpful, especially in cities where the competition is fierce for rentals.

“While rental guarantee services do help in addressing the challenges tenants face due to a lack of credit history, it’s important to consider the additional cost, which is around 5 per cent. This may be burdensome for newcomers who cannot afford even the basic rent amount,” said Vijay Aivalli, a realtor with Sutton Group Realty Systems Inc.

“In my 23 years of experience, landlords typically have requested an extra month’s rent when a potential tenant lacks a credit history, which is reasonable and it’s not an expense but advance payment. However, in recent years, due to current Ontario regulations and sudden surge of immigrants, landlords have become more cautious.” 

Two immigrants from Nigeria launched rental guarantee services this year.

Bloomfi and Payfi, are currently part of the Toronto Business Development Centre’s Land and Expand accelerator program. Payfi’s founder says he  signed up over 500 customers in Canada within the first three weeks. Bloomfi was incorporated in December 2022 and launched its pilot phase in October 2023 to learn from the market.

Prospective renters can approach Bloomfi or Payfi to serve as their rent guarantor for a fee. Prior to onboarding a customer, these companies do an evaluation, reviewing the applicant’s income, visa status, and even their credit score from their home country.

Other companies, such as SingleKey, offer similar rental guarantee services among others to reduce the risks landlords face when renting out their properties. It covers up to 12 months of unpaid rent (up to $60,000), provides up to $10,000 for property damage, and offers legal support during evictions including paralegal fees up to $2,000. The service comes at a cost of five per cent of the monthly rental income if paid annually, or 5.5 per cent monthly, with a promise of no hidden fees for landlords​, according to their website.

The inspiration behind Payfi, founded by Seun Sanni and Philips Akinyele in November 2021, stemmed from the personal challenges Philips encountered due to the absence of a Canadian credit score upon his relocation to Canada in 2021.

 “As startup founders with a business valued at $5 million in Nigeria, the refusal to rent us a house here in Canada because of our lack of a credit score was unacceptable,” Sanni said.

Funded by Techstars Toronto, Payfi has plans to launch a platform allowing property owners to list their units and enable renters to make credit card payments for rent. 

The rental housing crisis in Canada has been escalating, fuelled by a blend of population growth, historically low interest rates, and a shortfall in housing construction over the last decade, leading to steep increases in property prices and rental rates.

A special report from RBC cautions, “The surging demand for rentals is expected to keep vacancy rates low and rents high, exerting continuous pressure on the rental market.”