Timothy Loosemore is facing trial after pleading not guilty to the murder of Maree Vermont at her rural home at Goldie in Victoria's Macedon Ranges on August 5, 2023.
Neighbour Kyman Share, who lived about 500 metres from Ms Vermont, on Thursday recalled talking to a British man covered in soot while the home was on fire.
"They had a small argument. He went outside to get firewood and when he came back, the place was on fire," Mr Share told the jury, recounting his conversation with Loosemore.
Earlier that night, Mr Share had just finished watching television with his partner about 10pm when they heard a loud popping and crackling sound.
"It was extremely loud like an explosion," he told the jury.
From his verandah he saw an orange glow in the vicinity of Ms Vermont's home and raced there to see what was happening, the jury was told.
Mr Share said he had to turn back to call emergency authorities because of poor phone reception in the area.
He said he then raced back to Ms Vermont's home, running into another neighbour Peter Greenham, who had been alerted to the fire by Loosemore.
Mr Greenham said he and his wife had been jolted awake by a frantic Loosemore banging on their door asking them to call police and the fire brigade because the house was on fire.
Mr Greenham noticed Loosemore was quite blackened by soot and had scratches or marks on his face and blood on his arms or hands.
The pair drove to the burning house and Mr Greenham asked the accused what had happened to Ms Vermont.
"He said 'we had an argument, it wasn't a big argument, but we had one'," Mr Greenham said.
They met Mr Share at the home, which was engulfed in flames.
Both men ran around the home several times yelling Ms Vermont's name but were unable to get close because of the ferocity of the fire.
Mr Greenham recalled seeing a "very subdued" Loosemore, while Mr Share sat with the British house guest who was "in shock" and repeatedly murmuring he couldn't understand what had happened.
The men carried Loosemore to paramedics, noticing dry blood on his cheek and underneath his arms.
Ms Vermont's body was found inside her burnt-out home and Loosemore, a British traveller planning to bike around Australia, is accused of killing her and setting fire to the house, or assaulting her and trying to conceal the assault by setting the house alight.
Loosemore had been staying at the home for free in exchange for doing work around the property.
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