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Trudeau Bank Tax Risks Backfiring and Boosting Costs for Homebuyers

  • Lenders may raise mortgage rates, fees: Bloomberg Intelligence
  • Canadian banks seen taking on more debt if measure passes
Justin Trudeau.

Justin Trudeau.

Photographer: Christinne Muschi/Bloomberg

Prime Minister Justin Trudeau’s election campaign promise to raise taxes on Canada’s biggest banks could backfire and make home purchases less affordable, undercutting his goal of helping buyers in one of the world’s hottest markets, according to an analysis from Bloomberg Intelligence.

Banks’ response to tax increases is typically to pass on the cost to borrowers through higher interest rates and service fees, Bloomberg Intelligence analysts Andrew Silverman and Paul Gulberg wrote in a note Tuesday, citing a European Central Bank study from last year. For home buyers, that would mean extra expenses in a housing market that’s already out of reach for many Canadians, with the average cost of a home up 16% over the past year to C$669,200 ($529,840) in July.