Housing affordability for new mortgage borrowers in Australia, which improved over the year to March 2019, will continue to improve over the next 12 months, according to Moody’s Investor Service.

Its latest report noted the proportion of household income needed to meet repayments on new Australian mortgages improved to an average 26.5% in March 2019, from 28.7% a year earlier.

Affordability improved because housing prices declined in the biggest cities, while average incomes also increased modestly. Average headline mortgage interest rates increased slightly to 5.4% in March 2019 from 5.2% a year earlier, but this was outweighed by the outcomes with prices and incomes.

Moody’s says affordability improved over the year in most cities, including Sydney, Melbourne, Brisbane and Perth, but deteriorated in Adelaide. The biggest improvement in housing affordability was in Sydney.

In Perth, now the most affordable capital city for housing in Australia, the proportion of income needed for mortgage repayments improved to 19.4% in March 2019, from 19.7% a year earlier.