A new survey has found that more than 1.3 million households are suffering mortgage stress despite low interest rates.
It has been established by Datamonitor an independent market analyst that almost a quarter of mortgage holders are experiencing mortgage stress, with first time buyers who bought in the past 12 months being most vulnerable.
Twenty one per cent of these new home buyers feel that they will have difficulty paying back their home loans over the next five years, while thirty per cent said they were facing mortgage stress.
Datamonitor senior analyst Petter Ingemarsson said that these findings have important implications for the Reserve Bank's attempts to stimulate the economy by lowering the cash rate. "Consumer concerns and economic contraction risk fuelling a vicious cycle."
Mr. Ingemarsson remarked that official interest rate cuts to stimulate spending may have become less effective because the major banks had not passed on rate cuts to borrowers in full, and that borrowers may also prefer not to spend the money saved up due to lower rates. Most home loan borrowers have cut back on spending, with 39 per cent admitting that they had cut back on luxury items in order to afford their mortgage.
Concerns over the economy are not just isolated to home loan borrowers.
29 per cent of consumers have stated that they will have difficulty paying their bills over the next 12 months. There are also fears that cautious consumers may save government stimuli payments.
There is the possibility that consumer concerns could result in a negative spiral, as lower consumer spending, leads to lower business spending, and higher unemployment, which in turn, could lead to an even more cautious consumer mindset.
86 per cent of consumers felt it was likely that Australian unemployment would rise over the next 12 months.