RBA hikes to 4.35% in 8-1 vote. Investor variable rates push toward 7% on May 22

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

The Reserve Bank lifted the official cash rate by 25 basis points to 4.35% at the May 5 meeting, the third consecutive hike of 2026 and the highest cash rate setting since the Global Financial Crisis era. The decision was made on an 8-1 split of the Monetary Policy Board, with one member preferring to hold at 4.10%, according to the RBA media release published at 2:30pm Sydney time.

The number itself was the consensus call. As the May 5 preview flagged, 30 of 33 economists polled by Reuters had tipped a 25bp hike, and ASX 30-day futures were pricing it at roughly 86%. The surprise sat further down in the Statement on Monetary Policy, where the Bank's central forecast now assumes the cash rate rises further to 4.70% by the end of 2026. That is one more hike on top of today's, embedded into the RBA's own modelling. Inflation does not get back to the 2.5% midpoint of the target band until mid-2028 on the new forecast.

For Australian property investors, the day's news is short. The cost of money just went up, and the Big 4 have queued up the pass-through for 22 May.

What the Board Actually Did

Three things matter from today's decision: the level, the vote, and the forward guidance.

The level: 4.35% is the highest cash rate setting since November 2023, and matches the rate the previous Monetary Policy Board left in place from late 2023 through to the first 2025 cut. The three 2026 hikes (February, March, May) have effectively unwound the three cuts delivered in 2025. As Cotality (formerly CoreLogic) noted in its post-decision commentary, today's move puts the cash rate "back to square one" relative to a year ago.

The vote: The 8-1 split is more decisive than the 5-4 vote that delivered the March hike. The dissenter wanted to hold, not cut, which tells you something about where the centre of gravity now sits inside the Board. The hawks no longer need to argue for hikes. The doves are now arguing for pauses. That is a meaningful inversion from where the Board was sitting six months ago.

The forward guidance: The Board's statement landed on "having raised the cash rate three times, monetary policy is well placed to respond to developments". That phrasing is deliberate. It reads as a data-dependent stance that does not pre-commit to either a pause or another hike. Pair it with the SMP's 4.70% terminal assumption, and the message is: we are not done, but the next move depends on the next CPI print.

The 4.70% Forecast in the SMP Is the Real News

Markets were prepared for a hike. Markets were not prepared for the SMP to assume one more on top of it.

The May 2026 Statement on Monetary Policy carries the following central forecasts:

• Headline inflation peaks at 4.8% in mid-2026
• Underlying inflation remains above 3% until mid-2027
• Inflation only returns to the 2.5% target band midpoint by mid-2028
• The cash rate assumption underpinning that path lifts to 4.70% by end of 2026

That last line is what the Big 4 economist desks are dissecting this afternoon. CBA, NAB and ANZ had all called May as the likely endpoint of the cycle, with the cash rate holding at 4.35% from here. The SMP's forecast track is more hawkish than that. It implies at least one further 25bp move within the next six months, most plausibly at the August or November meetings.

Westpac chief economist Luci Ellis, whose pre-decision call was for a terminal rate of 4.85%, looks closest to the SMP's own assumption. CBA's post-decision note flagged that the Board now has "room to pause" but stopped short of ruling out a further hike. NAB held its line that the cash rate stays at 4.35% until at least mid-2027. The split inside the Big 4 has narrowed at the front (everyone got May right) and widened at the back (the 2026 path now looks much less certain).

Bank Pass-Through: 22 May Is the Day

By 4pm Sydney time, every major bank had announced its pass-through. The pattern is uniform: 25 basis points across owner-occupier and investor variable rates, effective 22 May 2026.

• CBA, NAB, ANZ, Westpac: 25bp lift to all standard variable home loan reference rates, effective 22 May. Investor variable rates move in lockstep with owner-occupier moves.
• Macquarie: 25bp lift to variable home loan reference rates and variable everyday bank account interest rates, effective 22 May.
• Virgin Money: 25bp lift, effective 22 May.

The Finder RBA rate tracker lists the full lender breakdown, with regional and second-tier banks expected to follow within seven to ten days.

What this means in practice for investors with a Big 4 variable loan: your new rate is locked in from 22 May, but the higher repayment will not show up until your next billing cycle. For most investors that lands sometime in early to mid-June. Any extra interest paid before June 30 still counts toward the 2025-26 tax return.

What This Costs a $600k Investor Mortgage

The May 5 hike on its own adds roughly $95 per month to a $600,000 principal and interest investor loan with 30 years remaining, on the assumption of full pass-through. Across a year, that is around $1,150 in additional interest, before any tax deduction.

Stack that on top of the February and March hikes already absorbed, and the cumulative impact of 2026's tightening cycle on the same $600,000 loan looks like this:

• February hike (3.60% to 3.85%): ~$95 per month
• March hike (3.85% to 4.10%): ~$95 per month
• May hike (4.10% to 4.35%): ~$95 per month
• Cumulative: ~$285 per month, or roughly $3,400 per year

For investors running multiple properties, the numbers compound quickly. Two $600,000 investor loans now cost close to $7,000 more per year in interest than they did at the end of 2025.

If the SMP's 4.70% assumption plays out by year-end, add another $130 per month on top of that for a single $600,000 loan, taking the cumulative annual lift past $4,900. Run your own numbers under each scenario with the mortgage repayment calculator and the interest rate calculator before the May 22 effective date.

Interest-Only Investors Wear It Differently

If you are on an interest-only investor loan, the math is sharper because every basis point hits the line you actually pay. On a $750,000 interest-only loan, the May hike adds roughly $156 per month, or close to $1,875 per year. Across the three 2026 hikes, that is around $470 per month, or $5,600 per year in additional interest on a single property.

Investors approaching the end of their interest-only term should re-run their P&I rollover numbers today, not next month. The new variable rate (from 22 May) feeds directly into the serviceability calc on any new loan or extension request, and the borrowing capacity haircut on the May hike alone is roughly $24,000 for a couple and $12,000 for a single income earner. Across the three 2026 hikes, that is around $72,000 in lost capacity for a couple.

The April CoreLogic Data Already Shows the Bite

The dwelling price slowdown that landlords have been watching for is now visible in the data, and it predates today's decision.

The April Cotality Home Value Index recorded a national rise of just 0.3%, the weakest monthly print in nearly a year and a notable step down from March's 0.6% lift. Beneath the headline, the dispersion is sharp:

• Sydney: -0.6% in April
• Melbourne: -0.6% in April
• Brisbane: +1.1% in April
• Adelaide: +1.2% in April
• Perth: +2.1% in April

Sydney and Melbourne are the two markets where investor borrowing capacity is most binding, so it is no coincidence that they are the first to roll over. The smaller capitals, where median dwelling prices are still well below Sydney and Melbourne, are still riding the tailwind of constrained supply. The two-speed property market story is intensifying, not narrowing.

Cotality's view post-decision is that today's hike will "further dampen overall housing demand" through reduced borrowing capacity and weaker auction clearance rates. That feeds directly into vendor expectations on listings priced today versus two months ago. If you are buying, the negotiating leverage has shifted in your favour, particularly in Sydney and Melbourne. If you are selling, the bid stack just got thinner.

What Bullock Said, and Why It Matters

Governor Michele Bullock's press conference at 3:30pm Sydney time made clear that the Board sees the risks as still tilted upward. Three quotes worth retaining:

1. "We must get on top of inflation now before it gets away from us." This is the case for moving early. Bullock has been consistent on this since taking the chair, and today's framing was the most direct version of it yet.

2. "This is hurting them immensely." Bullock acknowledged that lower-income households and renters are wearing the cost of the tightening cycle most heavily. That is a softer tone than recent statements but does not change the policy stance.

3. The cash rate is "a bit restrictive". This phrasing matters. "A bit" is the qualifier. It tells you the Board does not see 4.35% as deeply restrictive, which leaves the door open for a further move if inflation does not cooperate.

Putting those three together: the Board is not done, but it would prefer to wait for evidence before moving again. A soft Q2 CPI print on July 30 would lock in the pause. A sticky one would put the August 5 meeting back in play.

What Landlords Should Do This Week

The RBA decision is fixed. The actions in front of you are not.

Confirm your new variable rate from your lender. Most have published the post-22-May rate already. Know the exact number, not the headline. Investor variable rates from the Big 4 now sit between roughly 6.85% and 6.95%, depending on lender and LVR. If your rate is materially above the published rack rate, now is the time to negotiate or refinance, particularly with second-tier lenders sharpening pricing to win share.

Update your cash flow forecast through to year-end on the 4.70% assumption. The SMP forecast is the RBA's own working assumption. Stress-test your portfolio against it. If a cash-flow positive property tips negative at 4.70%, you want to know that today, not in November.

Re-run your serviceability buffer. Most lenders use a 3.0% buffer above the actual rate. At 6.90% variable, the assessment rate is now around 9.90%. New investor purchases, refinances, and interest-only extensions all get assessed against that figure.

Lock in your June 30 records position. Three rate changes in the same financial year mean three different interest rates on your variable loan inside one tax year. Your accountant will thank you for clean monthly interest figures rather than a single annualised number. The EOFY landlord checklist covers what to capture and when.

Reconsider the fix question. As covered in the May 1 preview, fixed pricing has already absorbed expectations of one more hike. If the SMP's 4.70% terminal proves accurate, fixed rates above 6% across the Big 4 may end up looking reasonable in hindsight. If CBA's "room to pause" call is right, they may not. The decision turns on the certainty premium you are willing to pay, not on whether you can outsmart the bond market.

What It Does to Your Tax Position

Every dollar of additional mortgage interest is fully tax-deductible against rental income. The deduction softens the cash flow blow but does not eliminate it.

For a $600,000 investor loan at the cumulative 2026 hike impact (around $3,400 in extra annual interest):

• 32.5% marginal bracket: Deduction returns roughly $1,105. Net cash flow hit close to $2,295.
• 37% marginal bracket: Deduction returns roughly $1,258. Net cash flow hit close to $2,142.
• 45% marginal bracket: Deduction returns roughly $1,530. Net cash flow hit close to $1,870.

If negative gearing is part of your strategy, the higher deductible interest will increase the loss against your other income. That helps at tax time but does not help with the mortgage payment landing on June 15.

The mechanical risk here is record-keeping. Three different variable rates inside the same financial year, plus a possible fourth from a year-end hike, makes for a more complex interest calculation than the typical year. The cleanest approach is to log monthly interest as it falls due, not reconstruct it from bank statements at tax time. Tracking every other deductible expense through the year (landlord expenses guide) is what keeps the EOFY claim accurate without a scramble.

Frequently Asked Questions

What did the RBA decide on May 5, 2026?

The Reserve Bank lifted the cash rate by 25 basis points to 4.35%, the third consecutive hike of 2026. The Monetary Policy Board voted 8-1, with one member preferring to hold at 4.10%. The decision was announced at 2:30pm Sydney time and matched the consensus of 30 of 33 economists polled by Reuters.

When does the May 2026 rate hike hit investor mortgages?

All four major banks plus Macquarie and Virgin Money announced 25 basis point increases to variable home loan rates effective 22 May 2026. The first repayment at the new rate typically lands four to six weeks later, so the cash flow hit shows up on June and July investor statements.

What is the new investor variable mortgage rate after May 5?

Average variable investor rates have moved from roughly 6.65% to about 6.90% across the Big 4. On a $600,000 principal and interest investor loan with 30 years remaining, that adds around $95 to $100 per month, or close to $1,150 per year before any tax deduction. On a $750,000 interest-only investor loan, the lift is closer to $156 per month.

How high does the RBA forecast the cash rate going?

The May 2026 Statement on Monetary Policy assumes the cash rate rises further to 4.70% by the end of 2026 to bring underlying inflation back to the 2.5% midpoint of the target band by mid-2028. That implies one more hike on top of May 5 within the next six months, broadly aligned with Westpac's call but more hawkish than the CBA, NAB and ANZ baseline.

What did Michele Bullock say about the rate hike?

Governor Michele Bullock said the Board needed to act before inflation expectations became "embedded" in the economy. She acknowledged the cash rate is now "a bit restrictive" and that the increase would hurt borrowers, particularly those on low incomes. She said the Board needs to "get on top of inflation now before it gets away from us".

Will there be more RBA rate hikes in 2026?

The Board's forward guidance shifted to a data-dependent stance, noting that "having raised the cash rate three times, monetary policy is well placed to respond to developments". CBA and ANZ now flag May as a likely endpoint. NAB sees a hold until mid-2027. Westpac sees upside inflation risks and expects further tightening if cost pressures persist. The RBA's own forecasts assume one more hike to 4.70% by year-end.

When the rate moves, the cost of holding every property in your portfolio moves with it. Propkt tracks the new interest figures, the May 22 pass-through, and every other deductible expense across each of your properties, so you walk into your accountant's office in July with the actual numbers, not a rough estimate. Get started free.