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OFSI making it near impossible for average Canadian to purchase Investment properties coming in 2026
October 20, 2025 | Posted by: Andrew Wade
Canada's Banking Regulator Finalizes New Rules for Mortgages Linked to Rental Income coming into effect in 1st Quarter of 2026!
Canada’s financial regulator, OSFI, has finalized updates to its Capital Adequacy Requirements (CAR) guideline, providing clearer direction on how banks should handle mortgages tied to income-generating residential properties.
These changes will take effect starting with banks’ first fiscal quarter in 2026. The main update involves how lenders assess mortgages when rental income plays a key role in qualifying for the loan.
At OSFI’s recent Industry Day, officials emphasized that income used to qualify for one mortgage can’t simply be reused to qualify for another. This means both employment and rental income must be allocated carefully when borrowers own multiple properties.
Mark Joshua, OSFI’s Director of Capital and Liquidity Standards, explained the goal is to prevent the same income from being counted more than once. Lenders will need to adjust or remove previously used income when evaluating additional mortgages for the same borrower.
According to the finalized rules, banks can still use the “50% borrower-income” test—meaning a mortgage is considered income-producing if over half the qualifying income comes from the property. Alternatively, banks may use their own internal criteria, as long as it’s equally or more conservative. Regardless, the same rental income cannot be used to support more than one loan.
Why It Matters
Loans classified as income-generating often require banks to hold more capital, which can impact how investment mortgages are priced. These updated rules aim to standardize practices across financial institutions, while still allowing some flexibility for stricter internal policies.
For real estate investors and those with multiple properties, the changes highlight OSFI’s tighter approach to how rental and employment income can be used in mortgage applications.
Other Notable Changes
In addition to the updates for residential real estate, OSFI made several other changes in the CAR guideline:
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Combined Loan Products (CLPs): If a borrower defaults on one part of a combined loan tied to the same property, it will be considered a default on all parts of the loan. Since all products are backed by the same collateral, any recovery from a property sale will be shared across all loans in the bundle. Banks must implement this change by Q3 2027.
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Capital Floors for New Banks: Newly approved banks using internal models will begin with a 90% capital floor, which can be gradually reduced by up to 7.5% annually, pending regulatory approval.
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Capital Floor Deferral: The overall industry-wide capital floor remains unchanged at 67.5% for now.
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Treatment of U.S. Entities: Rules for U.S. government-sponsored institutions have been adjusted to better match American regulations.
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Market Risk Updates: Changes were made to how sovereign exposures are treated under the Default Risk Charge to better reflect their credit risk.
What’s Next
Looking ahead, OSFI plans to release a draft guideline on Credit Risk Management (CRM) in January 2026. This new framework will bring together and modernize existing policies—like Guideline B-20—into one comprehensive document covering residential mortgages, commercial properties, and business loans.
Graham Smith, OSFI’s Director of Lending and Mortgage Policy, said the goal is to bring all current guidance into a more cohesive and up-to-date format.
Andrew Wade
