The deterioration of housing affordability in Australia has resulted in a rise in the risk of mortgage defaults, according to a global credit rating firm.

A report released this week from Moody’s claims in the year to October 2015 Australia’s housing affordability “deteriorated significantly.”

Sydney in particular saw significant affordability deterioration, with the report claiming affordability is at a 14-year low.

According to Moody’s, as of 30 October 2015 Australian households with two income earners were spending on average 29.3% of their monthly income on monthly mortgage repayments, up from 28.2% over the previous year.

In Sydney, households were on average directing 39.2% of their income to mortgage repayments as of October 2015, up from 36.1% a year ago and the highest level since 2001.

While the average standard variable interest rate currently sits well below the 10-year average, Moody’s analyst Natsumi Matsuda said that was doing little to improve affordability in the face of strong capital growth.

“The current low mortgage interest rates have failed to offset the impact of rising house prices over the past year, and the implementation of interest rate hikes this month will further increase delinquency and default risks for mortgage loans,” Matsuda said.

The average standard variable interest rate was 5.45% as of October, compared to the 10-year average of 7.07%. 

The report highlights new mortgages in Sydney in Melbourne as particularly problematic, given the fact dwelling prices in the cities rose by 17.6% and 15.4% respectively in the 12 months to October.

Mortgages from Sydney and Melbourne account for 45% of loans in the rated Australian RMBS portfolio as of May 2015.