Canada’s bank regulator will finally move to curb investor mortgage risk—nearly 3 years behind schedule. The Office of the Superintendent of Financial Institutions (OSFI) will treat investor mortgages as riskier assets in 2026, reducing liquidity for mortgages on non-owner-occupied homes. Originally scheduled for 2023, the rule is part of Canada’s delayed adoption of global risk standards, meant to limit the use of internal models that often downplay threats and hide systemic risks. The change will impact all markets, but hit those dominated by investors the hardest.
Basel III: The One Weird Accord Canadian Banks Hate
The Basel Accords are a series of international agreements to improve global banking oversight. Basel III was introduced after the Global Financial Crisis (GFC), and aims to limit future shocks by forcing banks to properly assess risks and hold adequate capital against those risks.
A key feature of Basel III is a standard output floor: a global minimum based on risk-weighted assets (RWAs), which measure how risky a bank’s loans are. Riskier loans carry higher RWAs, and require more capital to back them.
Basel III sets the output floor at 72.5%, meaning that’s the minimum capital that needs to be set aside—even if internal models suggest lower risk. As a part of the delayed implementation, OSFI is introducing a new classification: Income-Producing Residential Real Estate. This classification will assign a premium to address the elevated risk that investor mortgages present, especially after a speculative boom.
Canadian Mortgage Risk Rules To Target Investor Lending
The new rules set a minimum risk weight of 30% for owner-occupied homes (60-80% LTV), while investor mortgages of similar terms will carry a 45% risk weight—50% more risk. That makes these loans more expensive for lenders to hold, translating into higher borrowing costs, reduced leverage, or—less likely—lower bank profits.
While it may sound like OSFI is punishing investors, it’s more of a gift to end-user homebuyers. When investors and homebuyers are lumped together, risk is averaged across the segment. By isolating investor mortgages, lenders can offer more favorable terms to people who actually live in their homes.
OSFI originally said these changes would take effect in Q2 2023, following a rate-driven investor frenzy. It seemed like a prudent move, especially after cities like Toronto saw over 70% of pre-construction projects sold to investors. But that announcement came just a few days after the first rate hike of the cycle—and they likely didn’t expect prices and demand to collapse so quickly. The need for tighter risk rules was reinforced, but the response was delayed. The changes still haven’t arrived, and in February, OSFI paused the output floor phase-in.
OSFI’s Delayed Mortgage Crackdown Will Finally Hit Investors in 2026
OSFI finally broke its silence recently, slipping details into an annual update. The 2026 Capital Adequacy Requirements (CAR) are set to take effect on January 1, 2026, but they inform banks to prepare for investor mortgage changes by Q2 2026. Whether that timeline holds is unclear—what is clear is the delay helped facilitate the risks it was meant to contain.
Postponing investor mortgage risk weighting injected more liquidity into the segment. Since then, banks have made excessive accommodations to facilitate investor mortgages—like leaning on blanket appraisals, potentially overstating asset values, with minimal regulatory resistance. Had these loans been more expensive for banks to carry, demand likely would have cooled and the market would be healthier. Instead, the delay facilitated policymakers’ attempt to reshape the market around a single, riskier class of buyer. This likely amplified the current real estate rut.
It’s worth asking if this delay was OSFI’s call, or imposed by, uh, a greater power?
Assuming no further delays, the impacts are obvious: investor liquidity will shrink, their leverage will fall, and financing costs will rise for non-owner occupied homes. Markets heavily reliant on investor borrowing will feel the squeeze more than end-user ones. Meanwhile, the investor mortgages now on lender books will stay put, potentially masking the scale of the risk.
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