Sydney Australia's most unaffordable city

Australia's housing affordability worsened over the past 12 months to March 31, 2016, according to Moody's Investors Service.

Moody's said on Thursday homeowners were required to spend a larger proportion of their income on monthly mortgage repayments.

Moody's Analyst Natsumi Matsuda noted housing affordability deteriorated in all capital cities except Perth.

"During the 12 months to March 31, 2016, Australian households spent an average of 27.6 percent of their monthly income on mortgage repayments, up from 27.0 percent for the 12 months to March 31, 2015," Matsuda said.

"Nevertheless, housing prices fell during the three months to 31 March 2016, suggesting that repayment costs may have peaked."

Moody's said Sydney continued to be the nation's most unaffordable city for homebuyers, with households spending an average of 35.6 percent of their income on mortgage repayments as of March 31, 2016, followed by Melbourne.

"Households in Melbourne spent an average 30 percent of monthly income on mortgage repayments compared with 27.2 percent a year ago," Matsuda noted.

She added however that housing affordability improved in Perth (to 21.5 percent from 22.6 percent), owing to a decline in home prices.

Matsuda said the decision by the Reserve Bank of Australia (RBA) to cut the official cash rate by 25 basis points to 1.75 percent would have a positive influence on housing affordability.

"Though the extent of this impact will ultimately depend on whether there are any flow-on effects to the housing market, where lower rates can put upward pressure on prices," she noted.