The share of household income needed to pay off a home loan for a typical house in Sydney is near a ten-year high, new figures show, despite interest rates being at their lowest levels in decades.
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Credit ratings agency Moody's on Monday highlighted the extent to which the city's price boom was pressuring home buyers to spend a greater share of their pay on their mortgage.
The research by Moody's analyst Natsumi Matsuda calculated how much a two-income household, with average incomes, needed to cover the monthly loan repayments on a median price house.
The ratio is a key measure of housing affordability, which is affected by both house prices and the cost of debt.
In Sydney, the ratio rose to 35.1 per cent in March, which is above the ten-year average and higher than 32.8 per cent a year earlier.
While the ratio for Sydney is still below the highs of about 38 per cent that it reached in 2008, analysts say the rise is significant given the very low levels of interest rates today, and a return to more normal interest rates would push the ratio up sharply.
In 2008 the Reserve Bank had raised official interest rates to 7.25 per cent to contain inflation from the mining boom, compared with just 2.25 per cent today.
The analysis also found affordability had worsened in Melbourne, where the share of income required to pay back a loan for a typical house had increased to 28.2 per cent, up from 27.5 per cent a year earlier.
In Brisbane, Perth and Adelaide, the ratio fell - indicating an improvement in affordability.
It comes after the Reserve Bank has repeatedly warned buyers to take care in Sydney's market, where prices surged 13.9 per cent in the year to March, according to latest CoreLogic RP Data figures.
The pressure on Sydney and Melbourne households to spend a bigger share of their pay packets on their mortgages reflects the strong house price growth in both cities, at a time when wages growth is soft.
Ms Matsuda said the trend was "credit negative" for new home loans being written in the country's two biggest cities.
"The larger loan sizes and repayment obligations of new mortgages in Sydney and Melbourne are especially problematic since these mortgages are being underwritten at historically low interest rates," she said in a note.
Moody's analysed how the ratios would be affected if mortgage interest rates returned to their long-term average of 7.18 per cent, or if house prices continued to rise, and concluded that Sydney was "the most sensitive to any shift in the macroeconomic environment."
The Moody's research assumes a two-income household, where each person earning the national average, is paying off a 25-year loan worth 80 per cent of the typical house price for each city.
