OSFI flags mortgage renewals and real estate lending as top financial risks
Canada’s top bank regulator says the biggest red flags on the country’s financial horizon over the next year are real estate secured lending and mortgage risks.
“We expect that elevated interest rates and market volatility will result in continued higher borrowing costs, increased mortgage renewal/refinancing risk, decreased consumer spending and business investment,” the Office of the Superintendent of Financial Institutions (OSFI), which regulates the country’s banks, said in a statement Wednesday.
“There are signs higher mortgage payments are taking up a larger part of some households’ income, leading to increases in the number of borrowers not being able to make payments on other loans and debts.”
In an echo of the Bank of Canada’s financial stability assessment earlier this month, OSFI’s watch list cites rising household debt alongside wholesale credit risks and funding and liquidity risks. The final items on OSFI’s list are integrity, security, and foreign interference risks.
OSFI said 76 per cent of the mortgages outstanding as of February 2024 will be coming up for renewal by the end of 2026, and warned that Canadian homeowners renewing mortgages during this period could face a payment shock.
“This payment shock will be most significant for homeowners who took out mortgages when interest rates were lower in 2020 to 2022,” OSFI said. “Households that are more heavily leveraged and have mortgages with variable rates but fixed payments will feel this shock more acutely.”
The regulator said payment increases will lead to a higher incidence of residential mortgage loans falling into arrears or defaults because mortgages that have already experienced payment increases due to renewal or product type — such as
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