New Federal Lending Expectations for Rental Property Mortgages
Recent comments from the Office of the Superintendent of Financial Institutions (OSFI) caused concern among small landlords and individual investors. Early reports suggested that qualifying for a rental property mortgage might soon become far more difficult, especially for those who rely on rental income to secure financing.
OSFI has now released further clarification. While changes are still coming, the impact appears more measured than early impressions suggested. The rules focus on how lenders classify and assess risk within their mortgage portfolios. Even though the guidelines target banks rather than individuals, they will still influence how investors qualify for financing across British Columbia.
These adjustments matter in a province where rental housing plays a major role in the housing market, and where many owners hold one or two investment properties as part of their long-term financial planning.
Key Shifts in How Lenders Must Treat Rental Property Mortgages
1. No repeated use of the same rental income stream
Lenders will no longer be able to apply the same rental income to multiple property applications. Each property will need to support itself when lenders run their qualification calculations.
This change affects borrowers who expand their portfolios by using the surplus income from one property to support another. While many lenders already follow a careful process, OSFI’s direction places the expectation into formal guidance.
2. Stricter treatment of income-producing real estate
If more than half of the income used to qualify the mortgage comes from the rental income produced by the property itself, lenders must classify the loan as income-producing real estate.
This classification triggers a higher level of scrutiny and may require lenders to hold more capital in reserve. When more capital must be reserved, the mortgage product often becomes slightly more expensive for the borrower.
3. New CRA rules for short-term rentals
The Canada Revenue Agency will disallow expense deductions, including mortgage interest, when a short-term rental is not licensed under local municipal rules.
In BC, communities such as Victoria, Vancouver, and Kelowna have tightened licensing requirements. Owners who fail to comply may lose key tax treatment and face municipal penalties.
Will These Mortgage Rules Make It Harder to Qualify?
Some early headlines suggested that existing or future landlords might soon face major mortgage challenges. Based on OSFI’s clarification, this is not expected to happen.
The guidance does not stop lenders from offering rental property mortgages. Instead, it changes how banks must measure risk and categorize certain mortgages internally.
Rate impacts for investment property mortgages
Because lenders may need to reserve more capital for some rental property loans, borrowers may see slightly higher interest rates on investment mortgages compared to owner-occupied homes. Early estimates suggest a difference of around 0.05 percent.
For most landlords, this may translate into slightly higher monthly costs. For those at the edge of qualifying, a small rate change could affect approval, especially if lending calculations are already tight.
Different lenders may take different approaches
Every lender applies its own internal policies within the federal guidelines. Some may adjust rental income allowances. Others may require stronger documentation or lower rental offsets.
Investors with several properties are likely to notice these shifts most clearly, as lenders will evaluate each property on its own performance.
How These Mortgage Changes Affect Small-Scale Investors in BC
Borrowing power may shift
Most lenders already review rental income carefully. OSFI’s guidance reinforces this practice. Borrowing room may tighten slightly, particularly for those who rely heavily on rental income to support new purchases.
Portfolio growth may require more planning
Investors who purchased their first property using surplus rental income from another may need to adjust their strategy when expanding. Lenders will focus on each property’s ability to stand independently.
Short-term rentals face new tax pressure
Anyone operating an Airbnb or VRBO must confirm they follow local licensing rules. Lack of licensing removes access to key expense deductions, which can affect net income and approval strength.
Documentation will matter more
Clear proof of rent, signed leases, and tax filings will play a larger role. Investors with several properties should expect lenders to review each one at renewal or refinancing.
Why These Mortgage Changes Are Happening
OSFI’s role is to help maintain stability in Canada’s financial system. When a mortgage depends heavily on rental income to meet payment obligations, lenders are viewed as holding a different level of exposure than standard owner-occupied loans.
By requiring stronger capital reserves and tighter classification, OSFI is directing banks to measure rental property risk consistently. The guidance is not designed to eliminate access to financing. It encourages careful risk practices across the banking sector.
What Investors in BC Should Do Now
Although these rules take effect in 2026, planning ahead can help landlords avoid challenges.
1. Confirm local licensing for short-term rentals
Those offering short-term rentals should confirm they follow all municipal rules. This protects both tax treatment and lender confidence.
2. Maintain updated paperwork
Keep leases, rent receipts, income statements, and expense records organized. Strong documentation helps lenders assess each property quickly.
3. Review your portfolio with a mortgage professional
Because each lender will respond to OSFI’s direction differently, early conversations can help outline which lenders may take more flexible approaches.
4. Plan ahead for renewals
Lenders may apply updated internal policies before 2026. Landlords with upcoming renewals or refinances should start early.
5. Prepare for slightly higher mortgage rates
Even minor adjustments can change carrying costs. Reviewing cash flow, rent levels, and reserve funds can help maintain long-term stability.
Connect With a Lawyer Who Supports BC Investors
Mortgage expectations for rental properties are shifting. Careful planning can help protect property value and long-term goals. For help with ownership, contracts, or property structuring, contact Sunny Tathgar for legal guidance tailored to BC real estate owners.
