OSFI leaves mortgage stress test in place, reaffirms LTI limits for lenders

Canada’s banking regulator left the mortgage stress test unchanged in its latest quarterly update, while making clear that loan-to-income limits will remain a central part of its approach to mortgage risk.

“We’ve seen success with the LTI framework as a prudential tool in promoting financial resilience by guarding against the buildup of highly leveraged borrowers,” Theresa Hinz, OSFI’s executive director of policy and risk response, told media on a briefing call. “For the time being, it will continue to operate alongside our existing debt service expectations in B-20, including the minimum qualifying rate.”

The decision follows expectations from some mortgage industry experts that OSFI could use the update to signal a shift on the stress test, particularly as the share of new mortgages with very high loan-to-income ratios has fallen sharply from pandemic-era peaks. During the housing boom, roughly a quarter of new uninsured mortgages exceeded a 4.5-times loan-to-income multiple, a figure that has since dropped into the low double digits.

Under the LTI framework, limits apply at the portfolio level, restricting how much of a lender’s new uninsured mortgage lending can exceed a 4.5-times loan-to-income multiple.

“Following its pilot, OSFI has determined that loan-to-income (LTI) limits lessen the build‑up of highly leveraged residential mortgage borrowers, which in turn reduces systemic risk.,” OSFI said.

The framework has been in place since the start of institutions’ 2025 fiscal years.

Six-month consultation on guideline consolidation

Separately, OSFI also announced a new consultation period on the consolidation and modernization of its supervisory guidelines.

The regulator said it is consolidating existing credit risk management guidance for mortgage lending, commercial real estate and corporate lending into a single, principle-based guideline.

“The resulting Credit Risk Management Guideline will align with international best practices and improve regulatory and supervisory efficiency, while reducing complexity and compliance burden for institutions,” OSFI said.

The consultation will run for six months, after which OSFI is expected to outline next steps.

Source: Canadian Mortgage Trends