Owning a home in Canada is an increasingly difficult proposition for people nowadays, and that can be true for people looking to move up the property ladder into 2nd or 3rd homes as their realties change as much as it is for 1st-time homebuyers looking to purchase a home for the first time. With the upcoming election in a few weeks time the major party leaders are all promising measures that will re-establish access to the housing market for people who currently can’t afford to buy the home they need.
This is a daunting challenge and there really is no quick fix. But among the other things being proposed is significantly increased taxes on big banks as proposed by the Liberals to address the ridiculous and obscene amount of national debt they’ve run up in a very short period of time. Fiscal responsibility is not part of the equation with these politicians, but even if the ‘bank tax’ might help pay down the debt it turns out that some economists and industry experts feel this may make the scenario worse for disadvantaged would-be homeowners.
The belief is very much that Trudeau’s election campaign promise to raise taxes on Canada’s biggest banks is going to backfire and actually result in homes becoming even less affordable, which would be harming his goal of helping buyers in one of the world’s hottest markets. Which in theory would benefit those working in the real estate business and especially for agents who may be struggling to bring new clients into the fold to the extent they’d like.
This makes our online real estate lead generation system in Canada here at Real Estate Leads such a good choice, but we’ll stay on topic and expand on why the general thinking is the Liberal’s ‘bank tax’ isn’t likely to provide what they’re hoping for it and will also won’t be any type of a fix for an overheated housing market that many people are struggling to get into.
Here’s Why
The way banks usually respond to tax increases is to pass on the cost to borrowers, and the standard way is through higher interest rates and service fees. That means home buyers assuming extra expenses in a housing market that’s already out of reach for many Canadians – the average cost of a home is up 16% over the past year to just under $670K. When you consider that’s a median price for homes ALL across the country it’s really something of a staggering figure and highlights how many middle-income earners won’t be able to even consider paying that amount for a home.
Last week the PM said that his government would add to the tax rate on bank and insurer profits above C$1 billion, and take it to 18% from the current rate of 15%, claiming that would raise C$2.5 billion over the next four years.
But again experts say the increase in bank fees and rates would be transferred to borrowers and not existing business clients. This is because they have fewer alternatives and because lenders would be wary of upsetting larger and much more profitable customers. Keep in mind as well that higher costs for borrowers could also have a trickle-down effect for purchases at retailers and restaurants. All of which factors in further to a reduction in purchasing power for many looking to buy a home.
Let’s not look past he fact that the bank’s job is to make money and raise money for shareholders and they have the means to make sure they can take on an obstacle put in their way. It is true that this tax was announced the tax during a week in which 4 of the country’s largest 5 banks posted quarterly profits above C$2 billion.
This proposed bank tax may also negatively affect homebuyers because it could also spur banks to take on more debt and buy tax-advantaged government bonds to soften the impact on them rather than raising capital by putting more equity up for sale.
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