Canada’s banking regulator (OSFI) just finalized some key updates to its Capital Adequacy Requirements (CAR) guideline, and it’s going to change how lenders handle mortgages tied to rental income. These rules kick in starting the first fiscal quarter of 2026.
The big shift? Income can’t be double-counted. If rental or employment income is used to qualify for one mortgage, it can’t just be recycled again for another property. OSFI made this point clear at its Industry Day, stressing that banks need to tighten up how income gets applied across multiple mortgages.
For lenders, the rule also reaffirms the “50% borrower-income” test: if more than half of the qualifying income comes from the property itself, the mortgage is considered income-producing. That classification usually means higher capital requirements, which can impact how lenders price investment property mortgages. Banks can still use their own methods if they want, but those methods need to be at least as strict as OSFI’s baseline.
How This Hits Small Investors:
In 2026, the way banks handle rental mortgages will fundamentally change. Under the old rules, you could use your salary plus a portion of rental income from property #1 to help you qualify for property #2.
Under the new rules, if you’ve already used your salary to qualify for property #1, that income is completely off-limits for property #2.
Here’s the problem: the math no longer works. A typical rental property might only generate around $6,000 a year in qualifying income after expenses. Will a bank approve a $400K mortgage on that? Not likely.
This effectively ends the middle-class wealth-building strategy of gradually owning two or more rental properties. And it doesn’t touch big institutional investors like pension funds or REITs, who use corporate financing structures that don’t rely on personal income. In short, OSFI is handing the rental market to corporations on a silver platter.
Why This Could be Bad for Renters Too:
OSFI says the change will reduce financial risk, but it could actually make affordability worse. When small investors are pushed out of the rental market, one of two things usually happens:
Institutions step in and buy more properties and often raise rents.
Rental supply shrinks, which drives up rents for everyone.
Either way, renters lose. And with these changes set to land as early as January 2026, the impacts could be felt sooner than people think.
Other Changes Worth Noting:
OSFI’s update wasn’t just about rental properties. Here are some of the other highlights from the final CAR guideline:
Combined loan products (CLPs): If you default on one product within a CLP, it counts as a default across all products tied to that same property. Banks have until Q3 2027 to roll this out.
New IRB banks: Freshly approved institutions will start with a 90% capital floor, with phased reductions over time (subject to approval).
Capital floor deferral: The sector-wide capital floor stays at 67.5% until further notice.
U.S. GSEs: Rules were clarified to better align with U.S. treatment.
Market risk: Adjustments were made to the Default Risk Charge for sovereign exposures so they’re better aligned with credit-risk treatment.
Conclusion:
OSFI isn’t slowing down. It’s already working on a Credit Risk Management (CRM) guideline, expected in January 2026. This will pull together and modernize existing rules (including B-20) into one framework covering everything from residential mortgages to commercial real estate and corporate lending.
So here’s the big question: how will these changes affect your real estate plans and what are your thoughts?
