Cash Rate May Hit 4.35% as Major Banks Hold the Line on May Hike
01 May 2026
Major Banks Hold Firm on May Rate Hike Despite Softer CPI Print
Australia's March quarter CPI came in below expectations – trimmed mean inflation printed at 0.8% for the quarter against a forecast of 0.9%, holding the annual rate at 3.3%. That might sound like progress, but for the big four banks, it was not enough to shift their May hike calls. CBA, ANZ, NAB, and Westpac each maintained their forecast for a 25-basis-point increase at the RBA's 6 May meeting, which would push the cash rate from 4.10% to 4.35%.
The context matters here. Australia's cash rate was cut three times in 2025, reaching a trough of 3.60% by August of that year. The RBA then surprised markets with back-to-back hikes – 25 basis points in February 2026 and another 25 basis points at the March 17 meeting – as inflation re-accelerated and capacity pressures rebuilt. The March decision was notably tight: five Board members voted to hike, four voted to hold. That four-to-five split signals the Board is not unified, and some economists argue a softer-than-expected Q1 CPI could yet swing a member.
CBA's head of Australian economics warned separately that a post-May hike remains on the table if a global energy price shock – linked to the ongoing Middle East conflict – feeds into domestic inflation. The RBA's own forecasts now project headline CPI peaking at 4.2% in mid-2026, well above the 2–3% target band. Trimmed mean is expected to peak at 3.7% over the same period.
Rate Movement Timeline
RBA Cash Rate – Recent Decisions and Upcoming Meeting
From late 2024 cuts to the current hiking cycle
Sources: Reserve Bank of Australia, The Adviser, CBA, ANZ, NAB, Westpac – May 2026
This Week's Rate Snapshot
Cash Rate (Current)
4.10%
Hiked 17 Mar 2026
Trimmed Mean CPI
3.3%
Annual – Q1 2026
RBA CPI Forecast Peak
4.2%
Headline, mid-2026
Forecast Rate (May)
4.35%
If all majors are right
Serviceability Squeeze Sends Brokers Toward Non-Bank Lenders
With the cash rate at 4.10% and potentially heading to 4.35%, borrowers are hitting walls at major banks – and brokers are increasingly routing files to non-bank lenders to get deals across the line. Non-bank lenders accounted for roughly 13% of broker settlement volumes in FY26, up from about 8% in FY25. Some broker businesses are reporting non-banks making up as much as 25% of their total settlements.
The primary driver is APRA's serviceability buffer, which requires lenders to assess borrowers at 3 percentage points above the loan rate. On a loan priced at 6.50%, that means a borrower must demonstrate they could service the loan at 9.50% – a bar that cuts deeply into borrowing capacity. Families with private school fees, private health insurance, or above-average living expenses are particularly affected, as major bank calculators factor those costs heavily into their assessments.
Non-bank lenders are able to apply more case-by-case judgment in their credit assessments, making them a practical alternative for borrowers who can service a loan comfortably but are caught out by rigid major bank calculators. Non-bank variable rates do carry a premium – currently sitting in the 7.25% to 8.50% range for some products, compared to ~6.35% for owner-occupier P&I variable rates at the majors. Borrowers considering this route would benefit from speaking with a broker who can assess whether the trade-off makes sense for their specific situation, including the longer-term implications of a higher rate.
Investor Lending Pushes Toward Record Highs Across Australia
Despite rising rates and tightening conditions, investor lending is surging. The September 2025 quarter recorded $39.8 billion in new investment loans – a new all-time record, surpassing the previous peak of $33.8 billion. Investors now represent 40.7% of all new mortgage demand, the highest share since 2017 nationally.
The trend is particularly pronounced in Queensland and Western Australia. Queensland's investor share of housing lending climbed to its highest point since 2004, while WA's is approaching its strongest reading since 2010. This reflects ongoing supply-demand imbalances in both states, where limited stock and strong interstate migration continue to underpin rental yields and capital growth expectations.
A growing proportion of this investor activity is being structured through companies or trusts, which adds a layer of complexity that mainstream banks are increasingly pulling back from. Non-bank lenders and specialist brokers are filling that gap. Tax and structural considerations for property held in a company or trust structure can be significant – an accountant or financial adviser familiar with property is well placed to assess the implications for any individual's circumstances.
April Housing Market: Perth Surges While Sydney and Melbourne Slip Again
Cotality's April 2026 Home Value Index confirmed what has been building for several months – Australia's property market is running at two distinct speeds. Perth posted a 2.5% gain in April alone. Brisbane added 1.8% and Adelaide 1.2%. Meanwhile Sydney fell 0.6% over the month, now sitting 1.0% below its November 2025 peak. Melbourne dropped another 0.6%, leaving it 1.9% below its November cyclical high.
Nationally, home values rose 0.3% in April – the weakest monthly result in nearly a year. The total value of Australian residential real estate was $12.6 trillion at the end of March, reflecting how much has been built into prices over the past cycle. The rental market remains under pressure, with a national vacancy rate of just 1.6% – a reading that continues to support rents even as buyer sentiment softens in the southern capitals.
The divergence follows a familiar logic. Perth, Brisbane, and Adelaide are being supported by strong interstate migration, limited housing supply, and a base that did not run as hard in the 2021–22 boom. Sydney and Melbourne carried prices that were already stretched relative to incomes, and rate increases are weighing more heavily on demand in those markets. ANZ has revised its Sydney forecast to a 0.7% price decline over 2026 as a whole – a notable shift from forecasts made when the RBA was still cutting.
April 2026 Cotality HVI – Snapshot
Perth (MoM)
+2.5%
Strongest capital, April
Brisbane (MoM)
+1.8%
Supply-demand squeeze continues
Sydney (MoM)
–0.6%
1.0% below Nov 2025 peak
National (MoM)
+0.3%
Slowest in nearly a year
House Price Forecasts Revised Down as Rate Hike Cycle Bites
The shift from an easing cycle to a tightening cycle has forced major banks to revise their property price outlooks significantly. ANZ has redrawn its house price forecasts in response to higher interest rates and weakened consumer confidence, now projecting Sydney prices to fall 0.7% across 2026 and Melbourne to underperform at similar levels. This is a material reversal from the forecasts made when the RBA was still cutting rates through 2025.
Not all markets are equal in this revision. Westpac still describes WA as "the strongest housing market in Australia", and forecast growth of around 8% in Darwin for 2026. The combination of supply constraints and population inflows into the mid-sized capitals means those markets are absorbing rate pressure better than their southern counterparts.
For anyone making decisions about purchasing, refinancing, or investment timing based on price expectations, the key point is that those forecasts are built on assumptions about the rate path – and those assumptions have shifted materially this year. A broker can help assess how current borrowing capacity and serviceability figures translate to real-world purchasing power at various price points.
Key Takeaways
- The RBA is expected to lift the cash rate to 4.35% at its 6 May meeting, with all four major banks holding that forecast despite a softer-than-expected March quarter CPI trimmed mean of 0.8%.
- The March 2026 rate decision was a 5–4 Board split, and the softer CPI print means the May debate is likely to be equally contested – there is no guarantee the outcome lands exactly as forecast.
- Non-bank lenders are taking a growing share of broker settlements (around 13% of FY26 volume) as APRA's 3% serviceability buffer squeezes borrowing capacity at major banks, particularly for borrowers with complex expenses.
- Investor lending has reached a new record value of $39.8 billion in quarterly originations, with Queensland and WA seeing investor market shares not recorded since 2004 and 2010 respectively.
- April's Cotality HVI shows the two-speed market has widened – Perth gained 2.5% in a single month while Sydney fell 0.6%, now sitting 1.0% below its November 2025 peak.
- Major banks have revised their Sydney and Melbourne price forecasts downward in response to the shift to a rate hiking cycle, with ANZ now tipping a 0.7% annual decline for Sydney in 2026.
Your home loan shouldn't just be set and forgotten – especially with the rate environment shifting this fast. Whether you're reviewing an existing loan, working out what a rate move means for your repayments, or planning your next purchase, book a chat with the JRW Finance team at jrwfinance.com.au/meet. You can also find us on TikTok, Instagram, and Facebook for your weekly property and finance wrap.
References
- Softer CPI fails to shift majors' May hike forecasts – The Adviser – 30 April 2026 – https://www.theadviser.com.au/broker/48371-softer-cpi-fails-to-shift-majors-may-hike-forecasts
- Statement by the Monetary Policy Board: Monetary Policy Decision (March 2026) – Reserve Bank of Australia – 17 March 2026 – https://www.rba.gov.au/media-releases/2026/mr-26-08.html
- CBA warns inflation spike could force post-May hike – The Adviser – April 2026 – https://www.theadviser.com.au/lender/48251-cba-warns-inflation-spike-could-force-post-may-hike
- Brokers turn to non-banks amid serviceability squeeze – The Adviser – April 2026 – https://www.theadviser.com.au/broker/48313-non-bank-mortgages-creep-higher-as-serviceability-squeeze-bites
- Investor lending powers towards new highs – The Adviser – April 2026 – https://www.theadviser.com.au/broker/48242-investor-lending-powers-towards-new-highs
- Cotality Home Value Index – April 2026 – Cotality – 1 May 2026 – https://discover.cotality.com/hubfs/Article-Reports/COTALITY%20HVI%20APR%202026%20FINAL.pdf
- Higher rates and lower confidence reduce house price forecasts – The Adviser – April 2026 – https://www.theadviser.com.au/borrower/48309-higher-rates-and-lower-confidence-reduce-house-price-forecasts
