Mortgage stress defies low interest rates

Interest rates may be at historic lows in Australia but almost a third of mortgage-holders are experiencing mortgage stress, according to a new survey released by British-based research house Datamonitor.

The research, released today, also pointed to the mortgage stress impacting broader spending habits within Australia, with two-fifth of Australian mortgage holders cutting back on discretionary spending.

Commenting on survey findings, Datamonitor senior analyst Petter Ingermarsson said the findings had important implications for the Reserve Bank’s attempts to stimulate the economy by lowering the cash rate, with an economic contraction and consumer concerns risking fueling a vicious cycle.

He said the Reserve Bank’s attempts to stimulate spending by lowering the cash rate may have become less effective because the major Australian banks have not passed rate cuts on to borrowers in full and borrowers may be hesitant to spend money freed up by lower rates.

Ingermarsson said there was a risk that consumer concerns would result in a negative spiral, as lower consumer spending led to lower business spending and higher unemployment, which in turn might lead to an even more cautious consumer mindset.

He said the survey had revealed that 86 per cent of consumers deemed it quite likely or very likely that Australian unemployment would rise over the next 12 months, leaving a bleak near-term outlook for the country’s economy.