Housing affordability worsened over the past 12 months as homeowners now spend a larger proportion of their income on monthly mortgage repayments, Moody’s Investor Service says.

Australians spend an average of 27.6 per cent of their monthly income on mortgage repayments, up from 27 per cent in the 12 months to March 2015. Affordability deteriorated in all capital cities except Perth.

Affordability slightly improved in all capital cities during the March quarter but the improvement was insufficient to curb the year-on-year deterioration. Sydney remains to be the country’s most expensive city as Sydney households spend an average of 35.6 per cent of their income on mortgage repayments. Melbourne is the second most unaffordable, with households spending an average of 30 per cent on mortgage repayments.

Only Perth improved its affordability from 22.6 per cent to 21.5 per cent as home prices fell, even though incomes are also declining. In general, affordability is better now than the average for the past 10 years.

Still, Natsumi Matsuda, an analyst at Moody’s, believe that this is an indication that repayment costs may have already peaked. The recent RBA cash rate cut to a new historic low of 1.75 per cent, as well as federal budget initiatives that limit the advantages of superannuation savings, might also add further stimuli to the property market.

Moody’s further noted that the latest rate cut will have a positive influence on housing affordability, though there is a possibility that lower rates may put upward pressure on prices.

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