OSFI Flags Housing Risks, Tightens Mortgage Oversight

Ottawa | Oct 11, 2025, 11:00 EST — Filed via Mortgage News Canada & OSFI Statements

Canada’s top banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has issued a stern warning about risks in the country’s housing market. With hundreds of thousands of borrowers set to renew mortgages at higher rates over the next 12 to 18 months, OSFI is tightening its oversight and urging lenders to avoid risky underwriting practices.

Housing Risks Under the Microscope

In its latest outlook, OSFI said “persistent vulnerabilities” remain in the financial system, with housing debt at the center. The regulator flagged that payment shocks will hit many households as fixed-rate mortgages come due.

OSFI highlighted that while delinquency rates remain relatively low, the pace of increase is accelerating, and pockets of financial stress are beginning to show. The regulator believes that without stronger discipline in lending, risks could spill into the broader economy.

Stricter Demands on Lenders

The new guidance places heavier responsibility on lenders to ensure borrowers can realistically manage higher debt costs. Among the measures OSFI is emphasizing:

• Realistic property valuations to avoid inflated collateral values.
• Stronger income verification for borrowers, especially in variable-income professions.
• Stress-tested affordability models that account for interest rates remaining higher for longer.
• Tighter risk controls on non-traditional lending products, including blended mortgages and extended amortizations.

“Banks must resist the temptation to underwrite on the assumption that rates will quickly fall,” OSFI’s superintendent noted. “The margin for error in today’s environment is slim.”

Balancing Oversight and Competition

OSFI acknowledged that while stricter rules are necessary, it does not want to stifle competition or innovation in the mortgage space. Lenders and brokers are being urged to strike a balance between accessibility and prudence.

Industry voices have raised concerns that heightened regulation could slow mortgage approvals and make it harder for new entrants in the market to compete. Yet OSFI maintains that credibility and long-term stability outweigh short-term convenience.

Borrower Impact

For consumers, the changes may be felt in several ways:

• More rigorous checks: Borrowers could see tougher requirements around documentation, income proof, and credit history.
• Lower approved amounts: Conservative valuations may reduce the maximum loan sizes available.
• Slower approvals: Additional compliance checks could extend processing times for mortgage applications.
• Renewal scrutiny: Even existing customers renewing their loans may be subject to tighter affordability checks.

This adds to pressure already facing Canadian households, many of whom are bracing for 15–20% higher monthly payments at renewal, according to Bank of Canada estimates.

Market Reaction

The announcement reinforces a cautious stance in financial markets. Analysts note that OSFI’s move is aimed at pre-empting broader instability rather than reacting to an immediate crisis.

Mortgage brokers say they are preparing clients for stricter processes. “We’re telling borrowers to get paperwork in order early and be realistic about what they can qualify for,” said one Toronto-based mortgage advisor.

Banks, meanwhile, are expected to step up stress-testing and risk controls, even as they balance competition for new customers.

Outlook

The combination of rising delinquency rates, higher renewals, and cautious regulators points to a more challenging environment ahead for Canadian borrowers. While OSFI’s measures are intended to shield the financial system from excessive risk, the near-term impact will likely be felt most by households navigating already-tight budgets.

Industry experts expect OSFI’s stance to influence not just the big banks but also credit unions and alternative lenders, making disciplined underwriting a market-wide standard.

“Canadian borrowers should expect a new normal,” said a housing policy researcher. “Tighter lending, tougher renewals, and fewer shortcuts.”

As mortgage stress continues to build, the regulator’s warning serves as a reminder: stability comes first, even if it means more friction in getting a loan approved.