The RBA rate hike on 5 May 2026 took the cash rate to 4.35%, a 25 basis point increase and the third consecutive hike in 2026. Vote 8-1, up from March’s 5-4 split. Governor Bullock kept the door open to further hikes, warning of “second-round effects” on prices as fuel and energy costs flow through.
The real read: this is exactly the kind of cycle that produces the best buying conditions of the next decade. High rates are temporary. The cost of an extra 25 basis points on your repayments is a few thousand dollars a year. The cost of sitting out the cycle, while less competitive buyers shrink and motivated vendors get more flexible, is hundreds of thousands of dollars of capital growth you don’t capture. Most of the best deals we have ever bought for clients have come during periods like this one.
The decision in detail
The Monetary Policy Board lifted the cash rate from 4.10% to 4.35%. That matches the November 2023 peak, the highest level Australian rates have been since 2011. The post-meeting statement framed the move around inflation persistence, capacity pressures, and the Middle East conflict feeding into fuel prices.
Three numbers from the day:
- 8-1 vote. Materially firmer than March’s 5-4. Hawks have the upper hand on the board.
- Inflation peak forecast lifted to 4.8% if the Middle East conflict resolves shortly, per coverage of the Statement on Monetary Policy released the same afternoon. The February SoMP had peak inflation at 4.2%.
- No forward guidance. Bullock did not signal a pause. The phrase used was that the Board “will do what it considers necessary” to bring inflation back to target.
If you assumed the Board would deliver this hike and then sit on its hands, today’s commentary read more hawkish than that. CBA, NAB and ANZ are calling 4.35% the peak. Westpac is calling for 4.85% by August. The market is closer to ANZ than Westpac. Either way, the cycle turns. Cash rates do not stay at peaks for years. The 2022-2023 hike cycle peaked at 4.35% in November 2023, the first cut came 15 months later in February 2025, and three cuts followed over the next six months. Plan for the same shape.
What it does to your repayments
The four major banks passed the full 25bp through after the March hike. Expect the same response in the next week or two. Variable rates that were sitting around 6.65% will move to roughly 6.90%.
What that looks like in dollars on an interest-only investment loan:
| Loan size | Old rate (6.65%) | New rate (6.90%) | Extra per month | Extra per year |
|---|---|---|---|---|
| $500,000 | $2,771 | $2,875 | $104 | $1,250 |
| $750,000 | $4,156 | $4,313 | $156 | $1,875 |
| $1,000,000 | $5,542 | $5,750 | $208 | $2,500 |
For investors with two or three properties, the cumulative monthly hit from this single hike runs $400 to $600. Across the three 2026 hikes combined, the same investor is paying roughly $1,200 to $1,800 a month more than in January.
Frame those numbers properly. An extra $1,500 a month across a portfolio carrying $1.5 million in debt is around $18,000 a year of additional interest cost. The same portfolio, sitting on roughly $1.875 million of underlying property value at 80% LVR, produces around $100,000 a year at the long-term Cotality compound growth average of 5.4%. The rate hike is real, but it is a small cost of doing business compared to the growth that comes from owning the asset through the cycle. Rents are also running up to absorb part of the hit, with national rent growth still 6.6% year-on-year.
What it does to borrowing capacity
This is the part that hits hardest if you are still buying.
Each 25bp move trims roughly $24,000 off a couple’s borrowing capacity, or around $12,000 for a single income borrower. Stack the three 2026 hikes (Feb, March, May) together and a couple has lost approximately $72,000 in borrowing capacity since January. A single applicant has lost about $36,000.
APRA’s serviceability buffer of 3 percentage points sits on top of the loan rate. A 6.90% loan rate means an assessment rate of around 9.90%. That is the number actually setting your borrowing limit. APRA’s debt-to-income cap (no more than 20% of new lending at a DTI of 6x or above) remains in place from February, which adds another constraint for investors carrying multiple loans. The full mechanics are in our borrowing capacity 2026 guide.
If you have a pre-approval issued before today, it is now stale. Most brokers will refresh the assessment within 24 to 48 hours of a cash rate move. Get yours updated before going under contract on anything.
What it does to property prices
Counter-intuitively, the national market is still up year-on-year despite three 2026 hikes. The supply story has been winning the tug of war with the rate story for most of the cycle. Vacancy is still tight (1.1% nationally, well below 1% in Perth, Brisbane, Adelaide). Building approvals are still falling. The Housing Accord is roughly 81,000 dwellings behind target through the first 15 months.
What the April Cotality data showed (released last week) is that the impact of higher rates is starting to bite at the top of the market first. Sydney and Melbourne both fell 0.6% in April. Perth and Brisbane kept rising. The pattern matches every previous tightening cycle: premium markets soften before affordable markets do, because buyers in premium markets are more often borrowing at the edge of capacity. We covered this in detail in why the top end is falling first.
For investors targeting the affordable end of the market in Perth, Adelaide, regional Queensland, and parts of Victoria and Tasmania, the rate cycle is barely a headwind. Buyers in those markets are usually not maxed out on borrowing, supply is genuinely tight, and rents are still growing.
The contrarian opportunity sits in this gap. Sentiment is the worst it has been in three years. Property news is dominated by panic headlines. A lot of would-be buyers will sit out the next six months waiting for “more clarity” or for “the bottom” of the cycle. That is exactly when the buying gets best: less competition at open homes, vendors more open to negotiation, fewer auction battles, more pre-market and off-market opportunities surfacing because agents know it’s a buyers-agent’s market right now. The investors who built real portfolios through the last two hike cycles bought hard during the fear, not after it.
What investors should do this week
A few practical actions, in rough order of urgency.
Refresh your pre-approval. Borrowing capacity has now reset twice in three months. If your pre-approval is more than four weeks old, the number on the letter is no longer the number a lender will write today.
Run your numbers at the new rate. Model your existing portfolio at 6.90% interest-only or the equivalent P&I number. If cash flow is tight, look at fixed-portion splits, IO extensions, or rate shopping with your broker. Not every solution suits every situation; this is a broker-and-accountant conversation.
Don’t panic-fix. Locking in fixed at the peak of a hiking cycle is historically the wrong move. CBA, NAB, ANZ are now calling 4.35% the peak. If they are right, three-year fixed rates above 6.5% would be paying above market for the next thirty months. Split structures still make sense for risk management; wholesale rushes to fixed at the top usually do not. The full trade-off sits in our interest only vs P&I post.
Keep buying. The underlying drivers of the affordable end of the market (vacancy under 1%, rental growth, supply shortfall) have not changed because the cash rate moved 25bp. Most of the best deals we have ever bought have come during periods when other investors were sitting on the sidelines. Trying to time the bottom of a rate cycle has cost more investors more money than buying through one ever has. Our May 2026 RBA preview walks through how we are screening properties differently in this environment.
Watch the next two weeks closely. The Federal Budget lands on Tuesday 12 May. Treasury has been modelling negative gearing and CGT changes that, if announced, would be a second policy shock on top of today’s monetary one. Our budget preview covers the scenarios in play.
What to watch into June
The June meeting is on Monday 1 June and Tuesday 2 June, with the decision out at 2:30pm AEST on the second. Three pieces of data will set up that meeting.
The April monthly CPI indicator is out on 28 May. If the headline number softens, the case for a pause grows. If it stays at or above 4.6%, Westpac’s “more hikes” call gets more credible.
April labour force data drops on 14 May. The unemployment rate has been hovering near 4.1%. A material loosening of the labour market would also tilt the Board toward a pause.
The May SoMP forecast revisions matter. If the RBA’s central case has inflation back inside the 2-3% band by mid-2027, today’s hike is probably the last for the cycle. If the inflation path is later than that, the Board will keep going.
The read
Three hikes in three meetings, a vote that has firmed up rather than softened, and a Governor who is not signalling a pause. The path of least resistance from here is at least one more hike unless inflation breaks meaningfully lower in the next two prints.
But zoom out. Cash rates do not stay at peaks. The last cycle peaked at 4.35% in November 2023 and the RBA delivered three cuts between February and August 2025. The current peak will turn the same way eventually. The fundamentals of the affordable end of the Australian market (vacancy under 1%, rents up 6.6%, the Housing Accord 81,000 dwellings behind target) have not weakened because the cash rate moved.
The question for investors is not whether to sit out the cycle. It is how aggressive to be while everyone else is sitting it out. Less competition at open homes, more flexible vendors, fewer auction wars, more pre-market opportunities. The investors who built serious portfolios through 2022-2024 bought hard during the fear. Same shape, same opportunity, this cycle.
This is general information only and not financial advice. Interest rates and lending criteria change frequently. Speak to a qualified mortgage broker about your specific borrowing situation.
If you want a second set of eyes on your portfolio strategy after today’s hike, book a free discovery call.
