P.E.I. homeowners, small businesses feeling effects of rising interest rates

The rising cost of borrowing is leaving some homeowners and small businesses on P.E.I. with a feeling of uncertainty.

In efforts to slow inflation, the Bank of Canada has increased its lending rate nearly five per cent in the last year and a half, meaning mortgage rates have shot upas well.

Charlottetown mortgage broker Kim Reddin said that has many of her clients worried.

"I'm getting emails in my inbox all the time.They're very concerned," she said. "Their mortgage is coming up for renewal in the next year. They're worried about maybe not being able to afford their house. I don't want people to panic like that."

Anyone renewing now, after a five-year term, can expect to pay about 30 per cent more each month, Reddin said.

Some with variable rates have seen their payments goup constantly. For those trying to break into the housing, therising rates have also made things even harder.

"People who qualified for a certain amount before rates went upnow don't qualify for that same amount," Reddin said.

"So they're struggling to find homes for what they're preapproved for, because rates are so high."

Businesses feeling the squeeze

Businesses are also feeling the effects of rising interest rates.

A recent survey by the Canadian Federation of Independent Business showsborrowing costs are now the biggest financial constraint its members face.

The arts and recreation, hospitality sector that were really hard hit during the pandemic, they're barely breathing. Frederic Gionet

"The arts and recreation, hospitality sector that were really hard hit during the pandemic, they're barely breathing," saidFrederic Gionet, senior policy analyst with the CFIB.

"They were hoping for a good season, a good tourism season to prop that up.But one season may not fix the entire problem. And having these debts roll over into higher interest will just increase the cost of them doing business and put them in an even more precarious position."

Gionet said small businesses pay about 2.1 per cent above the prime rate, meaning their cost to borrow would currently be about 9.3 per cent.

In February 2022, a$50,000 loan paid monthlyfor five years would have cost $5,811 in interest. The same $50,000 loan today wouldcost $12,330 in interest over the same period,a $6,519 increase.

More than half of the small businesses in the CFIB survey had to put up personal guarantees, such as their homes and other assets, to receive loans.

The businesses surveyedsaid they may need the loan for cash flow, or to buy equipment or inventory.

"Regardless if they want to or not, they might not have the choice but to pass these costs down to consumers," Gionet said. "So they're further contributing to inflation."

Relief ahead?

Meanwhile, inflation has cooled considerably across the country. That's especially true forP.E.I., which consistently led the country on inflation in recent years.

Canada's annual inflation rate fell to 2.8 per cent in June, itslowest in more than two years. In P.E.I., the rate was only 0.2 per cent.

Reddin hopes there will be some relief in the months ahead.

"The majority of the [rate] increases are probably behind us. We just have to learn how to live in this new environment for a little while," she said.

"No doubt they're not going down any time soon. But I don't think they're going up a lot further."