John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
Canada’s chartered banks can’t manage their mortgage businesses on their own. This seems to be the thinking behind the most recent imposition by the country’s bank regulator, Peter Routledge, who runs the Office of the Superintendent of Financial Institutions, or OSFI.
The regulator’s surprising announcement in OSFI’s January quarterly release had the self-congratulatory title, “continuing to advance smart, well-calibrated risk-taking.” What OSFI calls “smart” the Bank of England calls something else, a policy with “adverse” consequences.
OSFI is opting for what the Bank of England describes as “resilience at any cost” by overregulating the bank mortgage market. The cost will be high. First-time homebuyers and those trying to move up, seeking more space to start a family, will pay. The added sand in the wheels of our economy exacts a price, too.
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This thinking started in January, 2023, after the housing frenzy of 2021 and 2022. OSFI proposed new bank guidelines for residential mortgage underwriting, arguing the mortgage stress test initiated in 2018 was helpful, “but [said] additional measures may be needed to mitigate mortgage lending risks.”
That stress test adds two percentage points to a bank’s going uninsured mortgage rate to determine the mortgage amount applicants qualify for. That was useful when mortgage rates were running at 1.5 per cent in 2021. Today, not so much. Mortgage rates have returned to historical norms of about 4 per cent, forcing first-time buyers, for instance, to qualify at 6 per cent.
This reduces the amount applicants can borrow and makes it harder to enter and participate in markets such as Greater Vancouver and the Greater Toronto Area where house prices are typically in the $1-million range or more. OSFI believes this is good, but not good enough.
The regulator is adding loan-to-income (LTI) requirements to guide a bank’s overall mortgage lending business. Banks would ideally fund mortgages that are equal to or less than 4.5 times the income of uninsured mortgage borrowers across its entire mortgage portfolio.
To offer some flexibility, OSFI proposed that mortgages outside that range should comprise no more than 25 per cent of issued, uninsured mortgages in a quarter, essentially capping the volume of these larger mortgages often issued for homes in big cities.
OSFI also suggested regulating debt service limits for borrowers, dictating the amounts a bank could lend to individual mortgage applicants.
What did banks, other financial institutions and stakeholders think of this? OSFI indicated that feedback was “generally not supportive.”
OSFI was proposing to all but take over the critical administration of the bank’s mortgage business through regulation, without any evidence that systemically important banks or any others are at risk or are ever likely too be.
As of November, 2025, of the roughly five million mortgages in Canada that are tracked by the Canadian Bankers Association, just over 12,000, or 0.25 per cent, are in arrears of 90 days or more. The Canada Mortgage and Housing Corporation just reported that mortgage delinquencies are below historic norms.
OSFI is nevertheless acting on its 2023 proposals, which seem unsuited for 2026’s challenges. The good news is that OSFI dropped the notion of regulating debt service limits when it realized that would “remove too much … risk ownership from lenders.”
It is making the LTI a permanent requirement and keeping the mortgage stress test. Why both?
It is a question rightly asked by Canada’s mortgage broker par excellence, the folksy Ron Butler. Members of Parliament should be asking this question as well, particularly of the Finance Minister, Francois-Philippe Champagne, who is accountable for OSFI.
The Bank of England adopted LTI requirements for British banks. But it dropped the mortgage stress test in 2022 because it had little prudential value. Its Financial Policy Committee indicated that keeping both would undermine “growth in the U.K. economy in the medium and long term” and diminish support for first-time homebuyers.
Asked what the Canadian Bankers Association’s position is on OSFI’s permanent adoption of the LTI and retention of the mortgage stress test, the association responded positively, saying “We are in support of prudent debt service expectations.”
Bankers can be forgiven for tempering their public reaction. Mr. Routledge has relentlessly imposed new regulations on them despite leading arguably the safest banks in the world. Retired bankers can be less reticent about offending OSFI.
In Howard Green’s recent book, Gimme A Crisis, a profile of former Scotiabank CEO Rick Waugh, the banker ruminates on his career’s many lessons. One lesson is that “leaving [banking] just to regulators is dangerous.” OSFI is, according to Mr. Waugh, “problematic.”
Canadians trying to buy their first homes are likely to agree.