Sydney has overtaken Melbourne as Australia's most financially comfortable city for the first time since 2014, according to a new report on household finances.

The report, based on a survey of 1500 people conducted for ME bank in June, found that while household financial comfort rose 4 per cent for Sydney and Brisbane residents in the first six months of this year, residents of other Australian cities reported only modest changes in their financial comfort.

The cost of necessities and the prospect of rising interest rates are a source of financial stress for Australian households.

But the "Household financial comfort report" unearthed a mood of pessimism among Australians about their future financial circumstances, with the cost of financial necessities the major worry for almost one in two (44 per cent) Australian households.

It also found significant concern among households about the prospect of rising household mortgage rates, and concern about subdued income growth.