RBA Cash Rate Hits 4.35%: 2026 Rate Hike

The Reserve Bank of Australia has confirmed a 25 basis point increase to the cash rate, lifting it to 4.35 per cent after an 8-1 board vote on Tuesday 5 May. This is the third consecutive hike in 2026, following increases in February and March. The decision lands harder than a single number suggests: stacked on top of the two earlier rises, the cumulative repayment pressure since the start of the year is now substantial for anyone holding a variable-rate mortgage - and for first home buyers still building a deposit, the borrowing capacity calculation has shifted again.

What the board decided and why

The monetary policy board voted 8-1 to raise the cash rate from 4.10% to 4.35 per cent. The board cited persistent inflation and capacity pressures, with the Middle East conflict adding to fuel and commodity costs. Early signs that firms are passing on higher input costs to consumers, combined with short-term inflation expectations ticking up, gave the board enough reason to move again.

The RBA's statement made clear it is prepared to go further. The board said it will "do what it considers necessary" to bring inflation under control, language that the market is reading as leaving the door open for additional increases in the months ahead.

For context, the cash rate is now at its highest level since the tightening cycle of 2023. The three 2026 increases have fully reversed the benefit of the three rate cuts handed down in 2025, which had briefly eased borrowing costs and lifted household confidence heading into the year.

How much more you will pay each month

The May hike adds approximately $91 per month to repayments on a $600,000 variable-rate mortgage, and around $120 per month on an $800,000 loan.

But the more striking figure is the cumulative effect. The three 2026 rate rises together have added an average of $340 per month to repayments compared to the start of the year. That is more than $4,000 per year in additional repayment costs, and it fully erases the relief delivered by the 2025 cuts.

For first home buyers who locked in a pre-approval six or more months ago, that pre-approval may no longer reflect what a lender will actually offer today. Lenders assess affordability using a buffer typically 3 percentage points above the loan rate, and as variable rates approach 7 per cent, the assessment rate moves accordingly. A pre-approval from mid-2025 is worth revisiting before any offer is made.

Each 0.25 percentage point increase in the cash rate typically reduces maximum borrowing capacity by approximately $25,000 on a standard two-income application. Three hikes means borrowing capacity has contracted by roughly $75,000 since February - a meaningful shift for buyers already stretching for their target price range.

What comes next - and how certain is it

Westpac is the only major bank currently forecasting further rate increases in 2026, predicting hikes in June and August that would push the cash rate to 4.85 per cent. ANZ, CBA, and NAB have not committed to that view, but none of them are forecasting cuts anytime soon either.

The RBA's own language suggests it is data-dependent rather than on a pre-set path. If inflation falls faster than expected - or if employment weakens materially - the board could pause or reverse course. If inflation proves stickier, particularly given global commodity pressures, the Westpac scenario becomes more plausible.

The practical advice most lenders and advisers are offering: plan for the rates you can see today, build in room for at least one further 0.25 percentage point rise, and treat any eventual cuts as a bonus rather than a given.

What this means for first home buyers

Higher rates make borrowing more expensive, but they have also taken some heat out of property prices in the biggest cities. Sydney and Melbourne both recorded falls of 0.6 per cent in April according to CoreLogic data, while mid-sized markets like Brisbane and Perth continued to grow. For buyers in the major capitals, the rate environment is doing some of the affordability work - but only if your borrowing capacity holds up.

• Revisit your borrowing capacity. Run the numbers using rates at the current level. The figure you calculated six months ago is likely to have decreased, and knowing your updated limit before you make offers avoids costly surprises at settlement.
• Stress test your repayments at higher rates. Model what your monthly outgoings look like if the cash rate rises by another 0.25 or 0.50 percentage points from here. If those scenarios are manageable, your position is solid. If they stretch your budget, a revised loan size or longer saving timeline may be the more resilient path.
• Check scheme eligibility against current prices. The 5% Deposit Scheme (now with unlimited places and no income caps) and Help to Buy (7,700 places still available) are both worth checking. A modest softening in prices in your target area may have brought properties within the eligible price cap that were previously above it.
• Keep saving - rates are working in your favour there. Higher cash rates mean higher returns on savings accounts and term deposits. If you are still building a deposit, the current environment rewards your savings balance at the same time it raises the cost of the eventual loan. It is worth reviewing your savings account rate if you have not done so recently.
• Talk to a broker or lender about your specific situation. Fixed versus variable, scheme eligibility, and the size of loan that works across a range of rate scenarios are all questions where professional advice tailored to your income, deposit, and goals makes a real difference.

Run the numbers

Use these tools to understand how the confirmed rate rise affects your specific position:

• Interest Rate Shock Tester - enter your loan size and see your monthly repayments at the new 4.35% rate, and model what further hikes to 4.60% or 4.85% would add on top
• Borrowing Power Calculator - update your inputs to reflect today's rate environment and get a current estimate of your maximum borrowing capacity
• Scheme Comparison Tool - compare the 5% Deposit Scheme, Help to Buy, and other federal pathways to see which option suits your income, deposit size, and target property price
• Grant Stacker - check what state and federal grants you may be eligible for alongside your scheme choice, and see how they stack to reduce the cash you need at settlement