How the US-Iran War Could Affect Your Mortgage and Property Values

The conflict that erupted over the weekend between the United States, Israel, and Iran is sending shockwaves through global markets — and Australian homeowners are right to pay attention. Sharemarkets tumbled, energy prices spiked, and economists are now questioning whether the May rate hike that seemed a certainty a week ago will still happen — or whether the RBA might actually need to cut. Here's what it means for your mortgage and your property.

What Happened and Why It Matters

On 1 March 2026, the United States and Israel launched strikes on Iran, killing Supreme Leader Ayatollah Ali Khamenei. Tehran responded with missile and drone attacks across the Gulf region. Asian sharemarkets fell sharply on Monday, energy prices surged, and global investor sentiment deteriorated rapidly.

For Australia, the consequences aren't abstract. Higher energy costs feed directly into inflation. Inflation determines what the RBA does with interest rates. And interest rates determine what you pay on your mortgage each month. The chain from Canberra to your kitchen table runs through what's happening in Tehran right now.

KPMG estimates the conflict could shave 0.15% to 0.20% off Australian GDP this year — on top of the existing drag from US tariff policies. AMP chief economist Shane Oliver warns that sustained energy price rises could push inflation higher, adding further complications for a Reserve Bank that had barely finished hiking before the conflict began.

The RBA's Impossible Position

This is where it gets complicated for Australian borrowers. The RBA already raised rates to 3.85% in February — the first hike since November 2023 — just as a second hike in May was being widely forecast. The Middle East conflict has now thrown that trajectory into serious doubt, and economists are split into two sharply opposing camps.

Former Treasury economist Warren Hogan represents the hawkish view: if energy-driven inflation re-accelerates, the RBA would need to hike again — potentially taking the cash rate to 4.60%, a level not seen since November 2011 and one that would completely unwind all three of the 2025 rate cuts.

KPMG takes the opposite view. They argue the RBA will "look through" any short-term inflationary pressure and focus instead on the damage to consumer spending and economic confidence — ultimately cutting rates three more times in 2026 if the conflict is prolonged and global growth weakens.

The honest answer is that nobody knows yet. It depends on how long the conflict lasts and how severely it affects global trade and consumer sentiment. The May RBA meeting — already pivotal before this conflict — is now genuinely unpredictable.

What It Means for the Property Market

Sydney and Melbourne: Already Feeling the Pressure

New data from Cotality for February 2026 shows Sydney and Melbourne property markets were already flattening in response to the February rate hike — even before the Middle East shock. Both cities are proving "less resilient" to higher rates than Perth, Brisbane, and Adelaide, according to Cotality's researchers. A further rate increase would reduce borrowing capacity further: each 0.25% hike strips around $12,000 from the average buyer's maximum loan size.

If the "rates rise" scenario plays out and the cash rate reaches 4.60%, the cumulative borrowing power reduction since the first February hike would approach $36,000 for an average income household — a material constraint on what buyers can pay.

Perth, Brisbane and Adelaide: Better Placed

Tightly supplied markets with strong population growth are more insulated from rate sensitivity than Sydney and Melbourne. Perth is forecast to grow 10.9%, Brisbane 9.5%, and Adelaide 6.1% in 2026 — driven by supply shortfalls that don't disappear regardless of interest rate movements. A modest rise in rates slows demand at the margin but doesn't eliminate the structural undersupply that is underpinning prices in these cities.

Australia as a Safe Haven for Property Capital

There is a counterintuitive potential upside for Australian property. As the Middle East becomes less stable, global capital — particularly from Asian investors — tends to seek safe havens. Australia's political stability, transparent legal system, and strong property rights make it a natural destination for wealth preservation. Dubai's property market, previously a major draw for international investors, is already cooling as buyers hesitate to commit to the region.

Gold is already up more than 22% in 2026 as investors seek safety. Australian property — particularly in inner-ring Sydney suburbs — has historically also attracted safe-haven capital flows during periods of global instability.

A Partial Upside: Australia's Export Economy

There is a genuine economic offset for Australia. As one of the world's largest LNG exporters, Australia stands to benefit from redirected energy demand as Middle Eastern supply is disrupted. Higher export revenues support the Australian dollar and government income — providing a partial cushion against the consumer cost-of-living impact. It won't eliminate the sting, but it does mean Australia is better placed than most to absorb a prolonged energy shock.

What Should Borrowers Do Right Now?

The honest answer: don't panic, but don't be passive either. Here's a practical framework for the current environment:

• If you're on a variable rate: The conflict has introduced genuine two-way risk to rates — they could go up or down from here depending on how events unfold. Review your budget under both scenarios. Could you handle 4.60%? If not, it may be worth exploring whether fixing part of your loan makes sense as insurance.
• If you're considering fixing: Fixed rates from the major banks have already been rising since January in anticipation of further hikes. The conflict adds further uncertainty. Talk to a broker who can benchmark current fixed rates across multiple lenders — rates vary significantly between institutions right now.
• If you're planning to buy: Borrowing capacity calculations will be based on today's rates plus a serviceability buffer. Be conservative in your planning. Don't borrow to your absolute maximum in an environment where the rate outlook is genuinely uncertain in both directions.
• If you're an investor: Watch the RBA carefully over the next 60 days. The May meeting will be the first genuine test of whether the Board prioritises the inflation risk from rising costs or the growth risk from a global slowdown. That decision will shape the property market for the rest of 2026.

The Bottom Line

The US-Iran conflict is fast-moving and the economic consequences remain genuinely uncertain. What we can say is that the transmission channels to Australia are real and already active: global sentiment has deteriorated, cost-of-living pressures are rising, and the RBA's May decision is considerably more complicated than it was a week ago.

For Australian property owners and buyers, the key takeaway is this: the previous narrative of a fairly predictable rate path — one more hike in May, then stable — has been disrupted. Build flexibility into your financial planning, and make sure you understand what your mortgage looks like under a range of scenarios, not just the base case.

Sources: CNBC (March 2026); Al Jazeera; AMP Economics / Shane Oliver; KPMG Australia; Cotality February 2026 data; IC Markets; Lombard Odier; The Nightly Australia; SBS News