Canada’s banking regulator has finalized changes to its Capital Adequacy Requirements (CAR) guideline that clarify how lenders must treat income-producing residential real estate.
The revisions, effective with institutions’ first fiscal quarter of 2026, update how banks classify mortgages where rental income is a significant factor.
At OSFI’s quarterly Industry Day, the regulator stressed that income used to qualify for one mortgage cannot simply be counted again for another, tightening how both rental and employment income can be applied across multiple properties.
Mark Joshua, OSFI’s Director of Capital and Liquidity Standards, said the intent is “to ensure that income that’s used for one mortgage is not, then again, used a second time for another one. So…the income that was used on the first mortgage is removed or corrected for” when assessing a borrower’s additional properties.
Under the final guidance, banks may continue using the “50% borrower-income” test—classifying a mortgage as income-producing if more than half of the qualifying income comes from the property—or apply their own internal indicator, provided it is at least as conservative. OSFI also clarified that income used to qualify for one property cannot be used again for another.
Why it matters
Classifying a loan as income-producing typically carries higher capital requirements, which can influence how lenders price investment-oriented mortgages. The clarification aims to create consistency across institutions while still allowing banks to apply more conservative internal standards if they choose.
For borrowers, particularly those holding multiple properties, the changes underscore OSFI’s focus on tightening how rental and employment income can be used to support mortgage qualification.
Other key highlights
Alongside the residential real estate changes, OSFI also confirmed several other adjustments in the final CAR guideline:
- Combined loan products (CLPs): If a borrower defaults on one product within a CLP, it will be deemed a default across all products secured by the same property. “The exposures are all secured by the same collateral,” Joshua said, “so if a borrower were to default on one of them, the property would be liquidated and the recovery rate would be spread evenly across all of the products in the CLP.” Banks have until Q3 2027 to implement the change.
- Capital floors for new IRB banks: Newly approved institutions will start at a 90% capital floor, with phased reductions of up to 7.5% per year subject to OSFI approval.
- Capital floor deferral: OSFI is maintaining the sector-wide capital floor at 67.5% until further notice.
- U.S. government-sponsored entities: Clarifications were made to align their treatment more closely with U.S. rules.
- Market risk rules: Updates were introduced to the Default Risk Charge for sovereign exposures to better align with their credit-risk treatment.
Looking ahead, OSFI also signalled its next big project: a draft Credit Risk Management (CRM) guideline to be released for consultation in January 2026. It will consolidate and modernize existing guidance, including Guideline B-20, into a single framework covering residential mortgages, commercial real estate and corporate lending.
“We’re looking at the totality of Guideline B-20…in a sensible and coherent and modernized way into this new guideline,” said Graham Smith, OSFI’s Director of Lending and Mortgage Policy.
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Last modified: September 25, 2025