The banking royal commission will hit the Sydney and Melbourne property markets hard, as lenders tighten up their policies.

Property data analytics company CoreLogic said bank credit policies are unlikely to be relaxed, making it more difficult for borrowers to obtain loans.

Australia's two largest cities both posted 0.4 per cent declines in housing prices in April, with further falls expected throughout the year.

The banking royal commission will hit the Sydney (pictured) and Melbourne property markets the hardest

CoreLogic's April report shows prices falls in Sydney, Melbourne and Brisbane, no change in Perth and rises in other capitals (shown in black, in red are the median house prices in each city)

Credit rating agency Fitch Ratings has warned a severe housing market downturn could in turn lead to a downgrade in the ratings of Australia's 'big four' banks.

'Credit policies aren't likely to be relaxed,' CoreLogic head of research Tim Lawless toldABC News.

'Borrowers who could have borrowed money for housing finance six months ago will find it more challenging, especially if they want interest-only loans, or are buying for investment purposes.'

Combined with stricter lending policies from the Australian Prudential Regulation Authority, the banks' reactions to the commission is likely to see prices fall further.

The property data analytics company said bank credit policies are unlikely to be relaxed, making it more difficult for borrowers to obtain loans (stock image)

The effects are likely to be most severe in Sydney and Melbourne, which showed the biggest monthly falls in April.

Fitch Ratings carried out a stress test on Australia bank ratings released on Monday, and stopped short of predicting drastic housing market declines.

Capital city housing prices - April 2018 Sydney: -0.4% (Median house price - $1,026,638) Melbourne: -0.4% ($824,955) Brisbane: -0.1% ($535,292) Adelaide: 0.1% ($462,049) Perth: 0.0% ($487,992) Hobart: 1.2% ($452,935) Darwin: 0.6% ($496,498) Canberra: 0.6% ($678,766) Non-capital areas : 0.4% ($371,226) Source: CoreLogic Advertisement

'The stress test was undertaken as risks within the household sector have continued to grow; and Australian banks, including the four majors, have large exposures to residential mortgages,' Fitch Ratings said.

'Our central scenario is not a sharp or substantial correction in Australia's housing market, and we believe the outlook for economic growth and unemployment is relatively benign.

Fitch Ratings predicted house price growth would moderate throughout the year as banks tighten up and housing supply increases.

The Monday report said a major downturn in the property market was only likely to be triggered by fast rising unemployment, or a drastic rate rises.

'A rapid rise in the unemployment rate remains the most likely driver of a significant housing market correction, although sharply higher interest rates would also pressure some borrowers - given the high household debt,' the report said.

Australia's two largest cities both posted 0.4 per cent declines in housing prices in April, with further falls expected through the year (pictured is Melbourne, stock image)

Australia's household debt to income ratio is sitting at a record high of 190 per cent, due to investors taking advantage of low interest rates to buy into the housing market.

Combined capital city dwelling values were 0.3 per cent lower over April, with the falls in Sydney and Melbourne followed by a 0.1 per cent drop in Brisbane.

Perth saw flat conditions, while Adelaide enjoyed 0.1 per cent growth, and Darwin and Canberra prices rose 0.6 per cent.

Hobart, which has seen 3.6 per cent growth over the last quarter, was the only capital which saw April increases of over one percent.