The Reserve Bank of Australia has raised the official cash rate by 25 basis points to 4.35% at its May 2026 board meeting. It is the third consecutive hike this year, and the decision was passed by a majority of 8 to 1 board members (RBA, May 2026).
If you are on a variable rate home loan, your repayments are about to go up. If you are on a fixed rate that is expiring soon, the timing of your next decision matters more than it did six months ago. And if you are an investor, there is a wider policy conversation underway that is worth understanding before the Federal Budget on 12 May.
Here is what actually happened, why it happened, and what it means for you.
Why Did the RBA Raise Rates Again?
The RBA’s decision was driven by two overlapping pressures: persistent domestic inflation and a global energy shock flowing from the conflict in the Middle East.
Australia’s headline Consumer Price Index (CPI) climbed to 4.6% in the 12 months to March 2026 – its highest level since late 2023, and a significant jump from 3.7% in February (Australian Bureau of Statistics, April 2026). Underlying inflation, which the RBA uses as its primary guide because it strips out volatile items, remained at 3.3% – above the Bank’s target band of 2 to 3%.
The RBA’s own statement noted that “the conflict in the Middle East has resulted in sharply higher fuel and related commodity prices, which are already adding to inflation.” Treasurer Jim Chalmers identified the US-Iran conflict as the primary driver behind the latest inflation spike, warning that fuel prices could climb further if the conflict persists.
The Bank’s updated forecasts now show headline inflation peaking higher than it had anticipated in February, with analysts from RSM noting that the RBA expects underlying inflation to remain above 3% until mid-2027 and only return to the 2.5% midpoint of its target band by mid-2028 (RSM, May 2026).
The RBA also signalled that further rate rises may follow. It stated it will “do what it considers necessary” to bring inflation back to target.
What Does This Mean for Variable Rate Borrowers?
If your home loan is on a variable rate, your lender will pass on some or all of this rate increase. Most major lenders have already announced they are increasing variable home loan reference rates by 0.25% effective later this month.
To put the impact in concrete terms:
Loan Balance | Approx. Additional Monthly Repayment |
$300,000 | +$47/month |
$500,000 | +$78/month |
$700,000 | +$110/month |
$900,000 | +$141/month |
These are approximate figures based on a 25-year remaining loan term. Your actual increase will depend on your loan balance, term, and lender’s rate adjustment.
Across the three rate rises so far in 2026, the cumulative increase to the cash rate has been 75 basis points (0.75%). On a $500,000 loan, that represents approximately $234 more per month compared to December 2025.
If your budget is feeling the pressure, the most useful thing you can do right now is check whether your current rate is still competitive. Not all lenders move by exactly the same amount – and with the cash rate having moved significantly, many borrowers who have not reviewed in 12 to 18 months may find meaningful savings are available.
Use our refinancing calculator to see how your rate compares, or speak with a broker who can run a full comparison across 30+ lenders.
What If I’m on a Fixed Rate?
If you are currently on a fixed rate, your repayments are not changing today. That is the benefit of fixing: certainty while the rate is locked in.
The more important question is what happens when your fixed term expires. If your fixed rate was set in 2022 or 2023, you were likely locking in during a period when rates were considerably lower than they are now. When that period ends and your loan reverts to a variable rate, the gap between what you were paying and what you will pay could be substantial.
The time to think about what comes next is 3 to 6 months before expiry – not the week before. Options at that point include:
- Refixing at a new rate with your current lender
- Switching to a variable rate
- Refinancing to a different lender entirely
- Moving to a split loan (part fixed, part variable)
For a full breakdown of how fixed and variable rates compare in the current environment, read our article on comparing fixed vs variable rate mortgages.
What Does the Rate Rise Mean for Property Investors?
For investors, today’s decision adds to cost pressure on loans that were often structured during a period of much lower rates. The impact on cash flow is real, particularly for investors on interest-only terms where the full rate increase flows directly through to monthly repayments.
There is also a broader policy context worth watching ahead of the Federal Budget on 12 May 2026. Treasurer Jim Chalmers has confirmed that Treasury is actively modelling changes to both negative gearing rules and the capital gains tax discount. No changes have been legislated, and the exact form of any announcements is not yet confirmed. What is clear is that investors with existing holdings should be across the current discussion.
Important note: The tax implications of any budget changes are a question for your accountant, not your broker. What your broker can do is make sure your loan structure is in good shape going into that conversation – particularly around how your investment debt is separated from your owner-occupier debt, and whether your current rate reflects today’s market.
If you want to understand what your options are as an investor right now, our investing in property service page covers how Borro approaches investment lending.
What Is Happening in the Property Market?
Property market performance across the country is mixed as the rate environment weighs on buyer confidence in some markets. The most recent CoreLogic data available (week ending early May 2026) shows monthly home value movements across states:
State | Monthly Home Value Change | Auction Clearance Rate |
QLD | +1.3% | 40% |
WA | +2.1% | 25% |
SA | +1.1% | 59% |
NT | +1.3% | – |
TAS | +0.2% | 100% |
ACT | 0.0% | 62% |
NSW | -0.6% | 49% |
VIC | -0.6% | 57% |
Queensland and Western Australia continue to show positive monthly growth, while New South Wales and Victoria are recording modest falls. The divergence reflects differing supply and demand dynamics, with Queensland in particular still benefiting from interstate migration and relative affordability compared to Sydney and Melbourne.
What Should You Do Before the Next RBA Decision?
The next RBA board meeting is scheduled for 16 June 2026. Markets are watching closely to see whether further rate rises follow – RSM’s analysis suggests the RBA’s own forecasts assume the cash rate reaching 4.7% by the end of 2026 (RSM, May 2026).
That is not a certainty. But it is a scenario worth being prepared for.
The most practical step you can take between now and 16 June:
- Check your current rate. Know what you are paying and when it was last reviewed.
- Use the refinancing calculator. Get a ballpark sense of whether savings are on the table.
- Book a broker conversation. A comparison across 30+ lenders costs nothing and takes less than 30 minutes.
Rates have moved quickly in 2026. A loan that was well-priced at the start of the year may look different now. The gap between staying put and reviewing is not always large – but sometimes it is.
Book a free phone appointment to review your rate ahead of the next RBA decision.
Most major lenders have announced increases to variable home loan rates effective within the next few weeks of the RBA decision. The timing and size of the pass-through varies by lender. Check your lender’s website or contact them directly for your specific loan.
For a $500,000 variable rate loan over 25 years, a 0.25% rate increase adds approximately $78 per month. Across the three hikes in 2026 (a total of 0.75%), the cumulative addition is approximately $234 per month on the same loan.
Whether fixing makes sense depends on your loan size, how long you plan to hold the property, your cash flow flexibility, and the specific fixed rates being offered. Fixed rates already factor in market expectations of future movements, so they are not always cheaper than variable even when further rises are anticipated. Speak with a broker to compare what is actually available for your situation.
Higher rates reduce borrowing capacity because lenders calculate repayments at a buffer above the actual rate. If you are applying for a new loan or refinancing, your assessed capacity may be lower than it was 12 months ago. A broker can work through the options across different lenders, who each apply serviceability assessments slightly differently.
The RBA targets underlying inflation of 2 to 3%. As of the March 2026 quarter, underlying (trimmed mean) inflation sits at 3.3% – above the target band. Headline inflation is 4.6%. The RBA’s own forecasts suggest underlying inflation will not return to the 2.5% midpoint of the target band until approximately mid-2028.
This article is general information only and does not constitute financial or tax advice. Your personal circumstances may differ. Talk to your broker about your specific situation.
Sources: Reserve Bank of Australia, Monetary Policy Decision, May 2026 – https://www.rba.gov.au/media-releases/2026/mr-26-12.html | Australian Bureau of Statistics, CPI March Quarter 2026 | RSM Australia, RBA May 2026 Rate Decision Analysis – https://www.accountingtimes.com.au/profession/rba-hands-down-may-interest-rate-decision | CoreLogic Property Market Data, May 2026
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