Mortgage stress hits 25%

Cyron

MORE than 1.3 million households are suffering mortgage stress despite low interest rates, a new survey has found.

Independent market analyst Datamonitor found that almost a quarter of mortgage holders are experiencing mortgage stress, with first home buyers who bought in the past 12 months especially vulnerable.

Thirty per cent of these new buyers said they were facing mortgage stress, while 21 per cent expect they will have difficultly paying back their home loan over the next five years.

"These findings have important implications for the Reserve Bank's attempts to stimulate the economy by lowering the cash rate," Datamonitor senior analyst Petter Ingemarsson said.

"Economic contraction and consumer concerns risk fuelling a vicious cycle."

The Reserve Bank of Australia (RBA) left the cash rate unchanged last week after its monthly board meeting, but had previously reduced the rate by 4.25 per cent since September last year.

Mr Ingemarsson said official interest rate cuts to stimulate spending may have become less effective because the major banks have not passed rate cuts on to borrowers in full.

Borrowers may also be hesitant to spend the money freed up by lower rates.

The most common reaction from pressured home loan borrowers has been to cut back on spending, with 39 per cent saying they had cut back on luxury items in order to be able to afford their mortgage.

However, concerns over the economy are not just isolated to home loan borrowers with 29 per cent of all consumers saying they will have difficulty paying their bills over the next 12 months.

"There are also some concerns that cautious consumers may hoard government stimuli payments," Mr Ingemarsson said.

"There is the risk that consumer concerns will result in a negative spiral, as lower consumer spending leads to lower business spending and higher unemployment, which in turn leads to an even more cautious consumer mindset."

Eighty-six per cent of consumers deemed it likely that Australian unemployment would rise over the next 12 months.