OREANDA-NEWS. Housing affordability for first-home buyers is at its most expensive on record in Sydney and Melbourne and remains high in other Australian capitals, despite housing-loan serviceability at its cheapest since 2003. Fitch expects first-home buyers to remain a diminishing part of the Australian housing sector, in the absence of a policy response to reduce house prices or subsidise first-home buyers' entrance into the market.

Home values have rapidly increased in recent years. Low interest rates have been a significant driver, as borrowers are able to service larger loan balances and existing owners can access equity in their properties to purchase investment properties. These factors have acted as a barrier to entry for first-home buyers.

Fitch has calculated a "Deposit to Income" ratio to measure the difficulty for a first-home buyer to enter the market. Sydney's ratio reached a new high of 120.2% in December 2015, above the previous high of 110.6% in 2004.

The proportion of first-home buyers in New South Wales and Victoria shows a negative correlation to the deposit-to-income ratio. First-home buyers are being squeezed out of Sydney and Melbourne because of high deposits required relative to income.