Strong Underwriting Shields Canada’s Housing Market Amid Slowdown, Says OSFI’s Routledge
A Resilient Housing Market Despite Economic Headwinds
Canada’s housing market is cooling, but robust underwriting standards are helping it weather the storm, according to Peter Routledge, Superintendent of the Office of the Superintendent of Financial Institutions (OSFI). Speaking at the Scotiabank Financials Summit on September 3, 2025, Routledge highlighted the strength of Canada’s financial system, crediting guidelines established over a decade ago for keeping mortgage delinquencies and credit losses near historic lows.
Key Details of Routledge’s Assessment
The Role of Guideline B-20
Routledge emphasized OSFI’s Guideline B-20, introduced in 2012, which sets principles for sound real estate secured lending. These include rigorous stress testing, income verification, and dynamic loan-to-value limits. “They’re just good housekeeping principles,” Routledge said, noting that despite economic challenges like high interest rates and inflation, mortgage delinquencies remain at an all-time low of 0.15%. This resilience is a testament to the effectiveness of B-20, which has prepared borrowers for payment shocks, particularly as 76% of Canada’s outstanding mortgages are set to renew by the end of 2026.
Current Market Dynamics
The housing market is showing signs of a slowdown, with about 25% of listings being pulled from the market—near secular highs—indicating sellers are not over-leveraged and can afford to hold properties without slashing prices. Routledge noted that this flexibility, combined with low delinquency rates, suggests households have “ample capital” to absorb potential downturns, supported by strong employment and economic fundamentals.
Non-Regulated Lenders and Systemic Risk
Private lenders and mortgage investment corporations, which originate 10% of mortgages but hold only 1% of outstanding balances, pose limited systemic risk. Routledge stressed that OSFI’s focus is on monitoring counterparty risk to prevent spillovers into the regulated banking system, stating, “If private lenders want to take higher risk for higher returns, and it is not systemically an issue, I don’t think we need to react”.
Context: A History of Prudence
OSFI’s proactive measures have been critical. The 2017 stress test for uninsured mortgages, requiring borrowers to qualify at the higher of 5.25% or their contract rate plus 2%, has proven effective, with Routledge noting that it helped absorb a 1980s-level interest rate spike without significant credit deterioration. The agency’s Domestic Stability Buffer (DSB), set at 3.5% for Canada’s big six banks, ensures a CET1 ratio of 11.5%, well above the global Basel III minimum of 8%, providing a cushion for economic shocks.
However, Routledge has previously flagged the housing market as a top risk, citing high household debt and interest rate pressures in OSFI’s 2023-24 Annual Risk Outlook. The agency’s ongoing review of B-20, with consultations ending in April 2023, aims to refine debt serviceability measures to address risks like variable-rate, fixed-payment mortgages, which can mask payment shock.
Impact on Canadians
Homeowners and Buyers
The strong underwriting standards mean homeowners are better equipped to handle mortgage renewals at higher rates, with 60% of chartered bank mortgages ($900 billion) due to renew by 2026, potentially facing a 15% annual payment increase. For buyers, stricter standards ensure financial stability but may limit access to credit, particularly for first-time buyers in high-cost markets like Toronto and Vancouver.
Economic Stability
The resilience of Canada’s housing market supports broader economic stability, avoiding the widespread defaults seen in the 2008 U.S. crisis. Low delinquency rates and robust bank capital buffers (average CET1 ratio of 13.7% for big six banks) reduce the risk of a financial crisis, even as trade war concerns and global economic slowdowns loom.
Lifestyle and Affordability
While underwriting protects the system, it doesn’t address affordability. High interest rates and home prices continue to challenge younger Canadians, with Routledge acknowledging that housing imbalances exacerbate affordability issues for new generations. Posts on X, like @ShaziGoalie’s claim of a “housing market imploding,” reflect public frustration, though Routledge’s data suggests a more manageable slowdown.
Expert and Public Reactions
Routledge’s optimism is echoed by industry analysts like Steve Huebl, who notes that credit quality remains “quite strong” due to low unemployment and economic resilience. However, critics on X, such as @EconguyRosie, point to broader market concerns, citing U.S. home sales nearing Great Recession lows, suggesting potential parallels for Canada if conditions worsen. The International Monetary Fund’s 2025 stress tests align with OSFI’s, supporting the 3.5% DSB as a necessary buffer.
Future Outlook
Routledge remains cautiously optimistic, stating there’s “no evidence to suggest credit’s going to deteriorate in a material way” that would destabilize the housing market or economy. However, OSFI is not complacent, preparing for a potential “more serious downdraft” with ongoing monitoring and stress testing. The agency’s focus on variable-rate mortgages and private lending risks suggests further refinements to B-20 may emerge in 2026, balancing affordability with financial stability.
Conclusion
Canada’s housing market is navigating a slowdown with remarkable resilience, thanks to OSFI’s stringent underwriting standards under Guideline B-20. Peter Routledge’s confidence in low delinquency rates and strong bank capital buffers highlights a system well-equipped for economic challenges. Yet, affordability remains a hurdle, and OSFI’s vigilance will be crucial as mortgage renewals and global uncertainties test the market’s strength. For Canadian homeowners and buyers, the message is clear: robust underwriting provides a safety net, but the path to affordability requires broader solutions.