RBA Hikes to 4.35%: Three Straight Rises Hit Australian Borrowers
08 May 2026
RBA Delivers Third Consecutive 25bp Hike, Taking Cash Rate to 4.35%
The Reserve Bank of Australia's Monetary Policy Board voted 8-1 on 5 May to lift the cash rate by 25 basis points, taking it from 4.10% to 4.35% – the third back-to-back increase since February 2026. The lone dissenter voted to hold, but the board majority judged that inflation remained persistently above target and that further tightening was necessary. RBA Governor Michele Bullock acknowledged that each hike "buys the RBA space" to assess incoming data before committing to another move.
The practical impact is significant. A borrower with a $600,000 mortgage and 25 years remaining sees their monthly repayments rise by a further $91 from this hike alone. Across all three hikes since February, that same borrower is now paying $272 more each month than they were at the start of the year. On a $1 million loan, the cumulative monthly increase across the three hikes is even sharper. Each 25bp move adds $453 per month to that loan size – meaning total additional monthly cost across the cycle now sits at $1,359.
The February hike was the first increase in over two years, ending an easing cycle that had brought the cash rate down from its 2023 peak to 3.60% by August 2025. The March move followed as the Middle East conflict escalated, pushing oil prices higher and seeping beyond petrol pumps into broader inflation measures. This week's decision continues that pattern – and the board's language leaves the door firmly open to further action at the June meeting on 16 June.
Rate Movement Timeline
RBA Cash Rate – Recent Decisions
Selected RBA decisions showing the easing cycle and current tightening phase
Sources: RBA Monetary Policy Board statements – The Adviser (theadviser.com.au)
Key Numbers This Week
Cash Rate
4.35%
Hiked 5 May 2026
3-hike repayment rise ($600k)
+$272/mth
Since Feb 2026, owner-occ P&I
National HVI – April
+0.3%
Slowest since Jan 2025
Clearance rate
<55%
Below this level since late March
Big Four Split: NAB Turns Hawkish, Westpac Tips Two More Hikes Before Year's End
The May decision has fractured the major banks' rate outlooks in a way not seen since the previous tightening cycle. NAB's chief economist Sally Auld and head of Australian economics Gareth Spence moved quickly after Tuesday's announcement to ditch the bank's single-hike forecast. NAB now expects the RBA to follow up May's move with a further 25bp increase at the June meeting – a meaningful shift that signals the bank sees inflation as stickier than previously assumed.
Westpac's position is even more aggressive: two additional hikes beyond May, in June and August, form its base case. If Westpac's forecast proves correct, the cash rate would reach 4.85% by August – a level not seen since the early 2010s. Commonwealth Bank and ANZ sit at the other end of the spectrum, maintaining that May was the final move and that the RBA will hold for an extended period while it assesses the cumulative impact of three hikes on household spending and inflation.
The divergence matters for borrowers weighing whether to fix their rate. When the country's largest banks disagree about where rates are heading, that uncertainty itself shapes borrowing decisions. Some broker clients are already moving toward short-term fixed products in response – not out of conviction that rates will keep rising, but simply to remove the uncertainty from their monthly budget. Any decision about rate structure carries tax and personal finance dimensions worth working through with a broker or qualified financial adviser.
Sydney and Melbourne Prices Fall as National Home Value Growth Hits Slowest Pace Since January 2025
Cotality's national home value index rose just 0.3% in April – the softest monthly result since January 2025 and a significant step down from the pace seen through late 2024 and early 2025. The national figure was dragged lower by Sydney and Melbourne, where values fell 0.6% over the month. Sydney home values now sit 1.0% below their November 2024 peak. Melbourne's decline is deeper: values are 1.9% below their November 2025 cyclical high and 2.3% below the March 2022 peak, a level they have not recovered to in more than four years.
Cotality research director Tim Lawless pointed directly to the rate environment: "The housing market was losing momentum from late last year as affordability and serviceability constraints weighed on demand. Now we have the additional downside pressure of higher interest rates, sentiment has fallen off a cliff, and rising inflation is set to drive the cost of debt even higher." Capital city home sales over the three months to April were 5.4% lower than a year ago and 7.4% below the previous five-year average – a meaningful pullback in transaction volumes that typically precedes broader price softening.
Perth remains the standout performer. Values rose 2.1% in April, adding more than $21,000 to the city's median dwelling value in a single month. Brisbane, Adelaide, and Darwin also continued to grow, each recording more than 1% month-on-month gains. But conditions even in those markets are slowing. The pattern across the country is consistent: growth is becoming increasingly concentrated in lower-priced segments, where buyers tend to rely more heavily on credit availability and are more directly exposed to rate movements.
Auction clearance rates have held below 55% across capital cities since the last week of March – a sustained period of soft results that points to buyers pulling back and sellers facing a more cautious pool of interest. This level of clearance, sustained for several weeks, suggests the market has moved from modest cooling to a more substantive shift in buyer sentiment.
Are Property Price Forecasts Now Too Optimistic? Banks Revise Down Their 2026 Outlook
Major bank economists have been revising their property price forecasts downward since the Middle East conflict escalated in late February and added fresh inflation pressure to an already tight monetary policy outlook. In an Australia Insight report published on 9 April, one major bank's economics team wrote that the escalation had prompted them to add a further 25bp hike to their RBA forecast profile, with the cash rate now expected to peak at 4.35% in May. At the time, that was still a projection – this week, it became reality.
The same team noted that Sydney and Melbourne markets were already "showing signs of slowing" and were expected to underperform through 2026. Looking further ahead, the forecasts for 2027 are modest: capital city property prices are projected to grow by just 2.1% across the year, well below the kind of gains that have defined the market over the past five years. Western Australia and Queensland home values have doubled over the past five years according to Cotality data – a run that is almost certainly behind these markets now.
These forecasts carry real uncertainty. Bank economists did not anticipate the current hiking cycle at this pace 12 months ago, and price outcomes will depend heavily on where rates actually land, how quickly household spending adjusts, and whether labour market conditions hold. Buyers and investors making decisions based on price expectations should factor in that range of outcomes and seek independent advice for their specific situation.
Borrowers Shift Toward Fixed Rates as Uncertainty Grows – Mortgage Demand Softens
Equifax data released this week shows overall mortgage demand for Q1 2026 was up 7.5% year-on-year – but that figure masks a significant deceleration from the 12.3% growth recorded in Q4 2025. March's demand was up just 3.5% compared to the same month a year earlier, down sharply from 8.9% in February. Higher rates and growing uncertainty about where the cash rate peaks are taking tangible weight off new borrowing activity.
Against that backdrop, some borrowers are pivoting toward short-term fixed-rate products – not necessarily because they expect rates to keep rising, but because locking in a known repayment provides budget certainty at a moment when the outlook is genuinely unclear. Mortgage brokers are reporting an uptick in enquiries about fixed options, particularly one- and two-year terms. It is worth noting that even the fixed-rate calculation has become more complex: lenders have been adjusting fixed pricing in recent weeks, and the gap between fixed and variable rates varies meaningfully across lenders.
Brokers are settling more than 76% of new home loans nationally, a record share that reflects the growing complexity of the lending landscape. APRA's DTI cap – which from 1 February 2026 limits lending at six times income or more to 20% of any lender's new mortgage book – has added another layer of assessment for borrowers near the edges of serviceability, making professional guidance more relevant, not less. Borrowers affected by the DTI limits should speak with a broker to understand which lenders have capacity and how their loan structure might be assessed differently across the market.
Key Takeaways
What You Need to Know This Week
- The RBA raised the cash rate by 25bp on 5 May to 4.35% – the third consecutive hike since February 2026, with an 8-1 board vote.
- Three back-to-back hikes have added $272 per month to repayments on a $600,000 mortgage and $1,359 per month on a $1 million loan compared to the start of the year.
- NAB has turned hawkish post-May, now expecting a fourth 25bp hike in June; Westpac forecasts two more hikes in June and August, while CBA and ANZ expect an extended hold.
- Sydney and Melbourne home values fell 0.6% in April; Sydney is now 1.0% below its November 2024 peak, with national home value growth at its slowest pace since January 2025.
- Capital city home sales over the past three months were 5.4% lower than a year ago and 7.4% below the five-year average, while auction clearance rates have stayed below 55% since late March.
- APRA's DTI cap – limiting loans above six times income to 20% of new bank lending, effective February 2026 – is adding complexity for borrowers near the edges of serviceability.
Your home loan journey doesn't have to be overwhelming. Whether the rate environment has you questioning your current structure or you're thinking about your next move, book a chat with the JRW Finance team at jrwfinance.com.au/meet – or find us on TikTok, Instagram, and Facebook.
References
- RBA Reveals Latest Cash Rate Decision – The Adviser – 5 May 2026 – https://www.theadviser.com.au/borrower/48394-rba-reveals-latest-cash-rate-decision
- Bullock Admits Cash Rate Hikes Buy RBA 'Space' – The Adviser – 6 May 2026 – https://www.theadviser.com.au/borrower/48396-bullock-admits-cash-rate-hikes-buys-rba-space
- Majors Split on Next RBA Move After Rate Hike – The Adviser – 6 May 2026 – https://www.theadviser.com.au/broker/48399-majors-split-on-next-rba-move-after-rate-hike
- Rate Hikes Put Housing Upswing on Brink of Reversal – The Adviser – 7 May 2026 – https://www.theadviser.com.au/broker/48404-rate-hikes-put-housing-upswing-on-brink-of-reversal
- Home Value Growth Eases Nationwide, Led by Declines in Sydney and Melbourne – Cotality – 1 May 2026 – https://www.cotality.com/au/insights/articles/home-value-growth-eases-nationwide-led-by-declines-in-sydney-and-melbourne
- Higher Rates and Lower Confidence Reduce House Price Forecasts – The Adviser – 9 May 2026 – https://www.theadviser.com.au/borrower/48309-higher-rates-and-lower-confidence-reduce-house-price-forecasts
- Broker Clients Choosing Fixed Rates as Rate Hike Concerns Rise – The Adviser – 5 May 2026 – https://www.theadviser.com.au/borrower/47862-broker-clients-choosing-to-fixed-rates-as-rate-hike-concerns-rise
- RBA Hikes Cash Rate for First Time in Over Two Years – The Adviser – February 2026 – https://www.theadviser.com.au/borrower/48040-rba-hikes-cash-rate-for-first-time-in-over-2-years
