Despite the lowest interest rates in decades, over 1.3 million households currently are in mortgage stress, according to a new survey.
Datamonitor are independent market analysts and their survey of mortgage holders found almost a quarter are experiencing financial difficulty with their mortgages and first home buyers could be the worst affected.
”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.
Mr Ingemarsson says a vicious cycle can be caused when consumer confidence drops and there is "economic contraction".
Home loan rates did not change last week when the Reserve Bank of Australia left official cash rates unchanged. Previously, the RBA had cut rates by 25 basis points in April, but none of the banks passed on the savings in full.
Previous RBA rates cuts had resulted in most banks passing on all or some of the savings to home owners.
Mr Ingemarsson said although the official interest rate has been cut due to banks not passing on all of the cuts to homeowners, spending is not likely to increase.
Borrowers are not necessarily keen to spend any savings made by lower rates.
With unemployment set to rise also this year, many consumers are wary of taking on too much debt.
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