A median income household in Australia lost approximately $18,000 in borrowing capacity from the February 2026 rate hike alone (Cotality). With the RBA raising the cash rate twice in early 2026 to reach 4.10%, variable interest rates for many borrowers are now pushing above 6% as of April 2026.
The February and March 2026 cash rate increases have directly constrained buyer budgets. These hikes, driven by sticky inflation at 3.8% and geopolitical pressures on oil prices, are shifting the price ceilings observed at open for inspections.
The impact on borrowing power
The reduction in borrowing capacity means buyers are qualifying for smaller loans, which directly limits their offer range. For those already holding debt, a $600,000 mortgage sees repayments increase by approximately $90–$100 per month for every 25bp hike (Cotality).
Melbourne dwelling value trends
Melbourne’s median dwelling value stood at approximately $830,371 in January 2026 (Cotality). Values dropped 0.6% in the March 2026 quarter and remain 1.3% below the March 2022 peak (PropertyUpdate/Cotality).
Conflicting 2026 price forecasts
Forecasters are divided on the trajectory for the remainder of the year. KPMG projects Melbourne house prices to rise 6.6% and units to rise 7.1% in 2026, while ANZ Research forecasts a -1.7% fall citing RBA tightening and a drop in consumer confidence (KPMG, ANZ Research).
The investor divestment variable
A significant wave of investor exits is increasing supply in investment-heavy segments, particularly inner-city apartments and certain middle-ring townhouse pockets. This is driven by Victoria’s heavy property tax burden, including the VRLT and the Short Stay Accommodation Levy, which have reduced net yields.
| Forecaster | 2026 Melbourne House Price Projection |
|---|---|
| KPMG | +6.6% growth |
| ANZ Research | -1.7% fall |
| Domain | Median price of ~$1.17 million |
| PropTrack | 6–8% growth (Capital city average) |
The appraisal spread
The divergence between bullish and bearish forecasts creates a wide appraisal spread for vendors. Determining a realistic listing price is difficult when borrowing capacity is falling while some analysts still project growth.
Frequently asked questions
Will Melbourne house prices fall in 2026?
Projections vary. ANZ Research forecasts a -1.7% fall due to RBA tightening and inflation, whereas KPMG projects a 6.6% rise (ANZ Research, KPMG). The outcome depends on whether owner-occupiers continue to absorb the increased supply of properties being sold by investors exiting the Victorian market.
How do current interest rates compare to 2025?
Following rate cuts in February, May, and August 2025 to 3.60%, the RBA raised rates in February and March 2026 to reach 4.10%. As a result, variable interest rates are pushing above 6% for many borrowers as of April 2026.
Is Melbourne property cheaper than other capital cities?
Yes, the median house price gap between Melbourne and Sydney now exceeds $600,000. Melbourne’s median has recently dipped below Perth’s and sits only marginally above Adelaide’s, which is historically unusual for Australia’s second-largest city.
Why are investors selling their Melbourne properties?
Divestments are driven by accumulated land tax increases, the VRLT, congestion levy expansion, and the Short Stay Accommodation Levy. Victoria currently has Australia’s heaviest property tax burden, which has sharply reduced net yields for landlords and reduced flexibility under tenancy law reforms.
Questions to ask your agent
- How has the recent drop in borrowing capacity specifically affected the buyer pool for my property’s price bracket?
- Are you seeing an increase in competing stock from investors divesting in this specific pocket of the eastern suburbs?
- Based on current buyer feedback, what is the gap between current vendor expectations and actual borrowing limits?
This article contains general market information based on data current as at April 2026. It does not constitute financial, legal, or real estate advice specific to your property or circumstances. For an appraisal and tailored advice, speak with a Fletchers agent in your area.