High borrowing costs placing housing, commercial real estate at risk: OSFI

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“This has put pressure on retail, corporate, and commercial borrowers’ ability to service debt,” OSFI said. “We have observed a deterioration in the credit quality of variable-rate, fixed payment mortgages.”

And despite lending institutions remaining well-capitalized in defiance of these pressures, “as the impact of higher rates continues to be absorbed, the ability of consumers and businesses to adapt to the current rate environment will be tested as loans mature over the next few years in residential real estate secured lending, CRE, and corporate loan markets,” OSFI added.

Residential lending should be responsive to shifting market realities

For residential lending specifically, OSFI said that it will continue to ensure that the industry’s risk management practices remain responsive to volatile market conditions.

“OSFI seeks an integrated set of common-sense protections that work effectively both in a high interest rate environment like today, and when interest rates are low as they were during the pandemic,” it said.

The regulator said that next week, it will be publishing the results of its initial public consultation on Guideline B-20, and on debt serviceability measures in particular.

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