OSFI Flags Rising Stress in Canadian Housing and Mortgage Portfolios

Toronto | October 14, 2025 — Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has raised red flags about growing vulnerabilities in the country’s mortgage and housing markets. In its semi-annual Annual Risk Outlook Update, OSFI pointed to rising delinquency trends in mortgage and real estate secured lending portfolios, as well as mounting pressures in the condominium sector.

The update, released this week, signals heightened supervisory focus on mortgage underwriting and credit quality as large waves of renewals approach in 2025–26.

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Rising Delinquency in Mortgage Portfolios

According to OSFI, early indicators show an uptick in arrears across certain mortgage segments, particularly in households that took on debt at historically low rates during the pandemic.

Borrowers now facing renewals at much higher rates — often 15–20% above their original payments — are beginning to strain cash flows. The regulator warns that this trend could intensify as more fixed-rate mortgages mature and reset in the coming quarters.

“Credit conditions remain broadly stable, but we are seeing pockets of stress emerging in both mortgage and real estate secured lending portfolios,” OSFI said in its update.

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Condo Market Under Pressure

One area highlighted as especially vulnerable is the condominium segment. OSFI noted that a combination of declining resale prices and oversupply is putting investor mortgages at risk.

Many investors purchased pre-construction units at peak valuations and are now struggling to close as financing costs surge. The oversupply in key urban markets, particularly in Toronto and Vancouver, is weighing on rental yields and resale values.

For banks and non-bank lenders, this raises concerns about concentrated exposures. Investor-owned condos make up a disproportionate share of portfolios in major metropolitan areas, magnifying the risks if values slide further.

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Regulatory Tightening and Supervision

To address these risks, OSFI reaffirmed its commitment to strict supervisory guidelines:

• Prudent underwriting — ensuring lenders continue to apply income and loan-to-income tests rigorously.
• Mortgage stress tests — maintaining buffers that ensure borrowers can absorb payment shocks.
• Capital adequacy — pressing institutions to hold sufficient capital against housing-related risks.

While OSFI stopped short of introducing new rules in this update, the tone of the report suggests a closer review cycle in coming months. Market watchers expect the regulator may issue targeted guidance if stress accelerates in specific asset classes like condos.

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Broader Market Context

The regulator’s warnings come at a time when Canada’s housing market is adjusting to a new interest-rate environment:

• The Bank of Canada cut its policy rate in September for the first time since 2020, but borrowing costs remain well above pre-pandemic levels.
• Household debt levels are near historic highs, with mortgage debt accounting for more than two-thirds of consumer liabilities.
• Renewals will remain a key pressure point, with about 60% of mortgages set to reset by 2026, according to BoC estimates.

The condo market stress also has wider implications for urban housing affordability and rental supply, as investor participation has been central to financing new developments.

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Outlook: Risks Still Elevated

While OSFI stressed that Canada’s financial system remains “fundamentally sound,” the tone of the update is cautious. The regulator views housing market vulnerabilities as one of the top systemic risks facing banks and non-bank lenders alike.

For borrowers, the message is clear: renewals at higher rates will remain a reality for many households, and lenders will be scrutinizing debt serviceability closely. For investors, especially in the condo sector, the combination of higher financing costs and weaker resale markets could amplify losses.

Mortgage professionals will be watching how lenders adjust their credit policies in response to OSFI’s warnings — and how much relief, if any, future BoC rate cuts can deliver.

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