Housing affordability is deteriorating because prices are rising - even though interest rates are low.

The Roost Home Loan Affordability monthly report, out this morning, blamed the national median house price for bouncing back to near record highs.

Colleen Deenehy, Roost Mortgage Brokers spokeswoman, said this was only being offset by record low interest rates which were helping double income households outside central Auckland and Christchurch where supply shortages were driving house prices higher.

Affordability worsened nationally in May as the median house price for all of New Zealand rose to $369,000 from $365,000 the previous month. This increased the proportion of single after tax income needed to service an 80 per cent mortgage on a median house to 53.6 per cent in May from 53.1 per cent in April

Affordability was improving since December 2009 as house prices have flattened out and interest rates fell.

Hot competition between banks through May and last month increased the bargaining power of many homebuyers, sparking a lift in home buying and borrowing activity, she said.

So affordability for young working couples remained near its best levels in almost eight years.

But affordability in central Auckland, Wellington and Christchurch remained a big issue.

"Borrowers looking for a good deal are able to negotiate hard between banks when they use a broker,", she said.

Some banks are offering discounted interest rates and are waiving some fees to some customers, which is improving affordability too, Dennehy said.

Banks cut their fixed mortgage rates through May and into early June as wholesale interest rates fell. However, the rate cuts dried up in mid June as wholesale interest rates bounced back.