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Canada  + Finance  | 
Canada's commercial real estate valuations may be at greater risk of decline than previously anticipated due to higher interest rates.

OSFI Requires Lenders to Set Aside More Mortgage Capital

Canada’s main banking regulator is requiring banks to set aside more capital to protect mortgages facing greater default risk due to higher interest rates.

Under the Capital Adequacy Requirements (CAR), mortgages in which payments are insufficient to cover interest charges must have a minimum loan-to-value ratio of 65%. The Office of the Superintendent of Financial Institutions also revised guidelines for its Life Insurance Capital Adequacy Test (LICAT), Minimum Capital Test (MCT) and Mortgage Insurer Capital Adequacy Test (MICAT).

“The revised CAR and MICAT guidelines establish capital requirements for lenders and mortgage insurers, respectively, that better align with risks associated with growing mortgage balances due to increased interest rates,” said OSFI in a news release

The changes guard against negatively amortizing mortgages. OSFI adjusted the requirements after recently finding that Canada’s commercial real estate valuations may be at greater risk of decline than previously anticipated.


Inside The Story

OSFIDBRS Morning Start

About Monte Stewart

Monte Stewart serves as Content Director - Canada for Connect Commercial Real Estate. Based in Vancouver, British Columbia, Monte provides daily news coverage of major Canadian commercial real estate markets, including Vancouver, Toronto, Montreal and Calgary. He has written about the real estate sector for various media outlets and Avison Young since the early 2000s. In addition, he has covered sports, general news and business for several leading wire services and publications, including The Canadian Press, The Associated Press, The Calgary Herald, The Globe and Mail, Research Money, The Daily Oil Bulletin, Natural Gas World and The Toronto Star. Monte is active in his community as a youth basketball coach and raises funds for such charitable causes as Movember.

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