Canada’s banking regulator has completed changes to its Capital Adequacy Requirements (CAR) guidelines that illustrate how lenders must deal with residential real estate that generates income.
The revision is in effect, which is accompanied by the agency’s first fiscal quarter of 2026, updating how banks classify mortgages, with rental income as an important factor.
On OSFI’s quarterly industry day, regulators stressed that income used to qualify for one mortgage cannot be simply counted into another mortgage, tightening how rental and employment income are applied across multiple properties.
Mark Joshua, director of capital and liquidity standards at OSFI, said the goal is to “make sure that income from one mortgage does not use another mortgage again.
Under the final guide, banks may continue to use the “50% Borrower Income” test, splitting mortgages into income if more than half of the eligible income comes from the property, or using their own internal metrics, as long as at least conservative. OSFI also clarified that revenue used to qualify for one property cannot be used again for another property.
Why it matters
Classifying loans into income-generating loans often leads to higher capital requirements, which can affect loan investment-oriented mortgages. The clarification is designed to establish consistency among institutions while still allowing banks to choose more conservative internal standards.
For borrowers, especially those with multiple properties, these changes highlight the focus of OSFI on how tightening rents and employment income can be used to support mortgage eligibility.
Other key highlights
In addition to changes in residential real estate, OSFI has confirmed several other adjustments in the final automotive guide:
- Joint Loan Products (CLP): If the borrower defaults on one product in the CLP, it will be deemed to be defaulted on all products protected by the same attribute. “These exposures are secured by the same collateral, so if the borrower defaults on one of them, the property will be liquidated and the recovery rate will be evenly spread across all products in the CLP,” Joshua said. The bank must implement the changes by Q3 2027.
- New IRB Bank’s Capital Floor: The newly approved agencies will start at 90% of the capital floor, with a phased reduction of up to 7.5% according to OSFI approval.
- Capital Floor Delay: OSFI keeps the entire sector’s capital floor at 67.5% until further notice.
- U.S. government-funded entities: Clarifications were made to make their treatment more closely aligned with U.S. rules.
- Market risk rules: The default risk fees introduced to sovereign risk are better aligned with their credit risk treatment.
Looking ahead, OSFI also marks its next big project: a consulting draft credit risk management (CRM) guide to be released in January 2026. It will consolidate and modernize existing guidelines, including Guide B-20, covering a single framework covering residential mortgages, commercial real estate and corporate loans.
“We are looking at the overall Guide B-20 in a wise and coherent and modern way,” said Graham Smith, director of loan and mortgage policy at OSFI.
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Financial Institutions Principal OSFI Regulatory Authority’s Capital Adequacy Requirements Guidance of Investment Property Office
Last modified: September 25, 2025
