A conflict thousands of kilometres away is reshaping the finances of Melbourne homeowners. The escalating war in the Middle East has sent global oil prices surging, and the ripple effects are landing squarely on Australian mortgage holders, property buyers and investors.
Oil prices explained
The latest conflict in the Middle East has disrupted the global supply of oil on a massive scale. As a result, oil prices have soared, reaching US$118 a barrel by the end of March 2026.
When oil prices rise, so does everything else. Fuel and transport costs are up, businesses are passing on higher costs to consumers and inflation has increased.
For the Reserve Bank of Australia (RBA), that creates a challenge: inflation is already above the 2-3% target range, with annual trimmed mean inflation having risen 3.3% in February, according to the Australian Bureau of Statistics (ABS). Now, there's fresh pressure to lift it even higher.
What the RBA has done, and what it may do next
The RBA raised the cash rate by 25 basis points to 4.1% at its March 2026 meeting, following a hike in February. Those two hikes in as many months have reversed much of the easing delivered in 2025.
The March decision wasn't unanimous. In the minutes of the meeting, it was revealed that four of the nine board members voted to hold. But the majority concluded that inflation had already been projected to remain above target for some time, and that the risks around that assessment had tilted further upward. As the minutes put it, the conflict in the Middle East "would add to global and domestic inflation under a wide range of scenarios."
The board was also candid about what is at stake. It noted that if medium- and long-term inflation expectations were to increase, "it would ultimately require significantly more contractionary monetary policy to achieve the Board's objectives."
In other words: act now or risk a much harder landing later.
All four big banks are predicting interest rates will be raised again in 2026, taking the cash rate to at least 4.35%. Westpac has gone even further, expecting the RBA to lift rates three more times this year to 4.85%.
The Board, while cautious, is also non-commital, adding that it is not possible to predict the exact path for interest rates given global geopolitical uncertainty. For borrowers, that creates pressure on its own.
What this means for Melbourne property
Melbourne property prices have softened slightly in early 2026, with the median dropping 0.6% over the first three months to around $828,249, according to Cotality. This reflects a decline in demand as higher interest rates have dampened buyer confidence.
In mid-March, in response to higher rates and this ongoing uncertainty, SQM Research revised its forecasts for the property market, predicting price declines for Melbourne of between -1% and -4% this year under a base case, and as much as -4% to -7% if the cash rate climbs to 4.5% or above.
However, these changes are not a reason to panic. Melbourne’s market has been here before.
The structural case for Melbourne property remains intact. Population growth continues to underpin this long-term demand. Melbourne remains one of Australia’s fastest-growing cities. According to the ABS, the capital grew by 105,000 people between June 2024 and June 2025 – a growth rate of 2.0%.
But supply, both new and existing, is not keeping pace. SQM Research’s latest data showed listings were just 2.7% higher in February than the same time last year, far below the long-term average.
The supply of new housing, while in a better place than many other states, is still behind state goals. According to the National Housing Supply and Affordability Council, Victoria completed 12% fewer new dwellings over the last year and is set to reach its Housing Accord goal by September 2029 and not July 2029 as originally hoped.
This means the pool of available stock is thin even as buyer activity softens. When demand returns – and historically, it always does – there will be relatively little supply to absorb it.
Construction costs
At the same time, supply constraints are being compounded by rising construction costs. The oil crisis has added further strain to the residential construction sector, with higher fuel costs pushing up the price of materials such as steel, concrete and plastics, impacting every stage of the build process.
According to quantity surveying firm Altus Group, residential construction costs are expected to rise 3.5-4.25% in 2026 under a standard escalation scenario – jumping to 12.5% or more if the conflict is prolonged. Major builders are already responding by abandoning fixed-price contracts and shortening tender validity periods to as little as 15 days.
This could mean that fewer projects will proceed, further tightening supply in two to three years, when demand is likely to recover.
Finding opportunities in a softening market
A cooling market is a challenge for homeowners, but for buyers in a strong financial position, it can be a strategic window. Vendors are adjusting their expectations and buyers have more room to negotiate. According to Cotality, the median vendor discount in Melbourne was up to 3.5% in February, from 2.9% at the same time last year.
That shift in buyer power can be meaningful for anyone looking to upsize the family home or add an investment property to their portfolio.
The rental market is also strong, reinforcing the case for investors. With vacancy rates at 1.6% in February and asking rents up 5% year-on-year, according to SQM Research, yields are improving at the same time as entry prices soften.
The key is being ready to move. In an uncertain market where conditions can shift quickly, buyers who have their financing sorted before they begin their search are at a significant advantage over those who are still working it out.
The mortgage questions you need to answer
For existing homeowners, the more pressing issue is whether their current loan structure still makes sense.
If your mortgage is on a variable rate, your monthly repayments would likely have increased since the start of the year. And, with more rate increases likely, this will continue to climb. The question is whether your loan is structured to give you the most flexibility and the lowest total cost as rates continue to move.
That might mean fixing a portion of your loan to limit your exposure to further rises. Or, you might consider refinancing to access equity for a purchase while the market is softer. It might mean restructuring to consolidate debt under one more favourable interest rate.
What to do next
If you are looking to buy, whether to upsize or invest, the current market offers opportunity, but preparation is key. Buyers who have their financing confirmed before they begin their search are far better placed to move quickly and negotiate effectively than those who are still working through their options. With vendor expectations softening and competition easing, the advantage sits with buyers who are ready.
If you already have a mortgage, the priority is making sure your loan still works for you. If you have not spoken to a broker in the past 12 months, now is a good time to do it. The rate environment has changed significantly since 2025, and the right loan structure today may look quite different from the one that made sense when you signed on.
At AXTON Finance, we work with busy Melbourne professionals navigating exactly these decisions. If you would like to understand how the current environment affects your position, call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch today.