Recent changes to mortgage qualification rules, which apply to BC, have sparked some confusion, particularly for investors and rental property owners. While headlines have suggested tighter rules, reduced borrowing power, and new limits on rental income, these new constraints are geared more towards traditional lenders, not borrowers.
This shift in how real estate transactions are being financed means that alternative lending has increased opportunities to fill the gaps left by traditional banks.
Understanding these new rules and how the market is responding to them is essential for both home buyers and investors.
Let’s break down what’s actually changed, what hasn’t, and why alternative lending is becoming an increasingly important part of today’s mortgage industry.
What Are the New Mortgage Rules in Canada?
These regulatory updates from the Office of the Superintendent of Financial Institutions (OSFI) are focused on capital adequacy and risk classification. This update is not designed to ban rental income or crack down on investors. It does, however, change how banks classify mortgages and assess risk when rental income is a significant part of qualifying—especially for investment properties.
To simplify it even more:
- Banks must now be more precise in how they classify mortgages for capital purposes
- Mortgages that rely heavily on rental income are considered higher risk and require banks to hold more capital
What did not change:
- Borrowers can still use rental income to qualify
- Underwriting standards under Guideline B-20 remain the same
- Investors are not banned from borrowing or scaling portfolios
However, while borrower qualification rules haven’t changed, bank behaviour has.
How the New Mortgage Regulations Affect Traditional Lending
Even without formal underwriting changes, banks are responding predictably: by becoming more conservative. This, of course, can result in making it harder for some borrowers to access traditional financing.
For many borrowers, this shows up as:
- Lower loan-to-value limits on rental properties
- Stricter treatment of rental income
- Reduced flexibility for borrowers with multiple properties
- Slower approvals and heavier documentation requirements
A key issue is income dependency. If more than 50% of a borrower’s mortgage repayment relies on rental income, that loan may be classified as income-producing residential real estate (IPRRE). From the bank’s perspective, this means higher risk, which could mean stricter capital requirements on their end.
While borrowers are still able to use rental income to qualify for a mortgage, there are three important things to note:
- The new regulations are making traditional lenders more cautious in how they weigh rental income in their calculations.
- Borrowers cannot use the same rental income to qualify for Property B as they did for Property A, unless they have separate income sources.
- Investors trying to scale quickly with multiple rental properties will be most affected by these new regulations
Rather than absorbing the higher capital requirements, many traditional lenders are choosing to limit their exposure by declining otherwise viable deals and pushing borrowers into narrower qualification boxes.
This is where alternative lending steps in.
How Alternative Lending Responds to These New Mortgage Constraints
Alternative lenders, including Mortgage Investment Corporations (MICs), operate under a different framework and guidelines than traditional banks. Rather than focusing on income, assets, and one-size-fits-all underwriting, alternative lenders take a more holistic approach. At PHL, we consider the full picture of a borrower and the property. When considering a borrower’s application, we look at:
- Assets on hand, including other properties
- Their plan for obtaining the property
- The exit plan
- Net worth
- Liabilities
- Credit reports, when possible
The borrowers increasingly turning to alternative lending in BC are not necessarily high-risk. In many cases, they are financially capable individuals navigating limitations in a traditional system. By taking a more holistic approach, this often means we can:
- Provide access to capital when traditional lenders say no
- Make decisions faster (which can be particularly important in a fast-paced real estate environment)
- Customize loan terms
- Provide financing that is aligned with the borrower’s real estate investment goals and strategy
We don’t see alternative lending as being a replacement for traditional lending, but as being a means of bridging the gaps it leaves behind.
What Is the Role of MICs in BC’s Lending Ecosystem
Mortgage Investment Corporations play a growing role in supplying capital to BC’s real estate market. By pooling investor funds and deploying them into secured mortgage investments, MICs provide capital while maintaining structured risk management practices. At PHL, we have a highly knowledgeable team of underwriters and appraisal partners who oversee everything.
Local market knowledge is a key advantage for us. Understanding regional property dynamics, regulatory environments, and borrower needs allows us at PHL to assess risk with greater nuance than national institutions applying uniform standards.
What the New Mortgage Rules Mean for the Future of BC’s Property Market
As mortgage rules continue to evolve, the coexistence of traditional and alternative lending is likely to become more normalized. Rather than operating on the fringes, alternative lending is increasingly viewed as a practical solution to a diversified financing ecosystem.
The lending market hasn’t suddenly become hostile to investors in BC, but it has become potentially more challenging. As traditional lenders become increasingly conservative, alternative lending will continue to offer greater opportunities for borrowers and investors alike.
Did the New BC Mortgage Rules Eliminate the Use of Rental Income for Qualification?
Short answer: No.
Despite the panic headlines, borrowers can still use rental income to qualify for a mortgage. The regulatory updates from OSFI did not change borrower underwriting rules under Guideline B-20. What did change is how banks internally classify and risk-weight mortgages that rely heavily on rental income, which influences how conservative they choose to be.
If Underwriting Rules Haven’t Changed, Why Are Banks Acting More Conservatively When Qualifying Mortgages?
Banks now face higher capital requirements for mortgages classified as higher risk, particularly when more than 50% of mortgage repayment depends on rental income. Rather than hold extra capital, many lenders are reducing exposure by tightening loan-to-value ratios, scrutinizing rental income more heavily, and slowing approvals.
Who Is Most Affected by These New Mortgage Regulations in BC?
Investors with multiple properties and those trying to scale quickly are feeling the biggest impact. Borrowers can no longer rely on the same rental income repeatedly across multiple properties unless they have additional income sources. This makes portfolio growth through traditional lending more challenging, even for financially strong investors.
How Does Alternative Lending Differ from Traditional Bank Financing?
Alternative lenders operate under a different framework and take a more holistic view of the borrower and the deal. Instead of focusing narrowly on income ratios, they assess assets, net worth, liabilities, property strategy, and exit plans. This flexibility allows alternative lenders to approve deals that banks may decline due to internal risk classifications, not borrower viability.
Are MICs Becoming a Permanent Part of BC’s Real Estate Financing Landscape?
Yes. Mortgage Investment Corporations are increasingly seen as a complementary pillar alongside traditional lenders. By pooling capital and applying local market expertise, MICs help bridge financing gaps created by more conservative bank behavior. As regulations evolve, alternative lending is becoming a normalized and essential part of BC’s diversified mortgage ecosystem.
Disclaimer:
This blog article (“Blog”) is for information purposes only, and may not reflect current legal developments or any updates to guidance (including by OSFI). Accuracy of information in this Blog is not guaranteed, and while all information in this Blog is provided in good faith, PHL Capital Corp. and its affiliates and related parties (collectively “PHL”) make no representation or warranty of any kind, express or implied, regarding the accuracy, validity, reliability, or completeness of any information in this Blog. Readers are encouraged to consult independent legal, tax, and accounting advisors prior to making any financial decisions. PHL Capital Corp. is a licensed mortgage brokerage in British Columbia, Alberta, and Ontario (Ontario Licenses #13546 and #13570).
