The Reserve Bank of Australia held the cash rate at 4.35% at its 16 June 2026 meeting following three consecutive 25-basis-point hikes in February (from 3.85%), March (to 4.10%), and May (to 4.35%). Three of four major banks — CBA, ANZ, and NAB — now forecast 4.35% as the peak. Westpac is the outlier, forecasting two more hikes to 4.85% by September 2026. No bank currently expects a rate cut in 2026. The earliest projected cut is mid-2027.
For borrowers, 4.35% is the new floor. Here is exactly how it affects borrowing power, serviceability, and loan strategy.
Borrowing Power: What 4.35% Actually Does to Your Maximum Loan
Your borrowing power is not determined by a bank's advertised variable rate. It is determined by the higher of the actual loan rate plus APRA's 3% serviceability buffer, or a floor rate set by the bank. In 2026, with advertised variable rates around 6.2% to 6.5% for owner-occupiers, the assessed rate is approximately 9.2% to 9.5%.
A single borrower earning $100,000 with no dependants, no other debts, and modest living expenses can typically borrow around:
- At 6.2% assessed at 9.2%: approximately $520,000 to $550,000
- At 6.5% assessed at 9.5%: approximately $500,000 to $530,000
A dual-income couple earning $200,000 combined, with the same profile, can borrow approximately $1.05 million to $1.15 million.
For comparison, if the cash rate were 3.85% (the level at the start of 2026), that same single borrower could have borrowed roughly $570,000 to $600,000 — about $50,000 to $70,000 more. The three 25bp hikes in 2026 have collectively reduced maximum borrowing power by approximately 10% to 12% for the average borrower.
APRA's 3% Serviceability Buffer: Why It Matters
APRA reaffirmed the 3% serviceability buffer at its July 2026 review. This buffer sits on top of the actual loan rate, meaning borrowers must demonstrate the capacity to repay at a rate roughly 3 percentage points above what they sign up for. APRA also maintained the countercyclical capital buffer at 1% of risk-weighted assets and the high DTI lending limits unchanged — banks may lend up to 20% of new owner-occupied and investment loans at a debt-to-income ratio of 6 times or above.
APRA noted that high-DTI lending remains well below these limits, meaning the caps are not currently restricting overall bank lending but serve as guardrails. Households remain highly indebted but non-performing loans remain low, with strong buffers keeping most borrowers well-placed.
APRA's warning flags are worth noting: the risk landscape is volatile, with Middle East conflict and higher oil prices adding to cost pressures. APRA has signalled it will adjust settings if early signs of risks materialise.
The Major Bank Forecasts
The four majors have diverged on rate expectations:
- CBA: 4.35% is the peak. Gradual easing from early-to-mid 2027.
- ANZ: 4.35% peak. First cut mid-2027.
- NAB: 4.35% peak. First cut mid-2027.
- Westpac: Expects two more hikes to 4.85% by September 2026. No cuts forecast before late 2027.
The RBA's own technical assumption in the May 2026 Statement on Monetary Policy projects a 4.70% cash rate by December 2026. This is a technical assumption, not a commitment. The SMP notes that the assumed path is based on market pricing and does not represent an RBA forecast.
The next RBA decision is 11 August 2026.
RBA Governance Reform: Split Votes Are Now Public
The RBA's governance reform, effective 1 March 2025, split the former single Reserve Bank Board into two separate bodies: a Monetary Policy Board that sets the cash rate, and a Governance Board that runs the institution.
The May 2026 meeting produced the first publicly recorded split vote under this new structure — an 8-1 decision to raise rates to 4.35%. Individual votes and press conferences after every decision are now standard, aligned with US Federal Reserve practice.
This transparency means markets and borrowers can now see exactly where each board member stands. Dissenting votes signal internal debate that previously remained hidden.
Rates Are Up, But So Are Card Costs Down
From 1 October 2026, card surcharges are banned on EFTPOS, Mastercard, and Visa payments. This is estimated to save Australian consumers $1.6 billion annually. Interchange fee caps will also be reduced from 0.8% to 0.3%, saving businesses an estimated $910 million annually.
While this does not affect mortgage rates directly, the reduction in day-to-day transaction costs provides a small offset to higher borrowing costs for households managing tight budgets.
What This Means for Your Loan Strategy
If you are buying now: Borrow at the rate you can lock in, but build a buffer. The market consensus is 4.35% peak with cuts not arriving until mid-to-late 2027. That means at least 12 to 18 months at elevated rates. Basing your budget on the expectation of imminent rate cuts is risky.
If you are on a variable rate: Your rate is already reflecting the three 2026 hikes. Check what your actual rate is — if you are paying above 6.5% as an owner-occupier, you may be able to refinance to a sharper rate.
If you are considering fixing: Fixed rates have repriced upward alongside variable rates. With three major banks calling the peak, fixed rates may start to ease slightly before variable rates move. A 2-year or 3-year fixed rate could be worth comparing against your current variable, particularly if Westpac is wrong about further hikes.
If you are refinancing: The serviceability buffer means lenders assess your ability to repay at around 9.2% to 9.5%. Ensure your income documentation is clean and your expenses are well-documented. A broker can help identify lenders with more generous assessment policies.
FAQ
Will the cash rate go higher? Westpac thinks so, forecasting 4.85% by September 2026. CBA, ANZ, and NAB think 4.35% is the peak. The RBA's own technical assumption has 4.70% by December 2026. The picture remains uncertain. The 11 August 2026 decision will be informative.
When will rates start coming down? Mid-to-late 2027 at the earliest, based on current major bank forecasts. No bank expects any cuts in 2026.
How much has my borrowing power dropped since the start of 2026? For a single earner on $100,000, roughly $50,000 to $70,000 less than when the cash rate was 3.85%. For a couple on $200,000, roughly $100,000 to $140,000 less.
Does APRA review the 3% buffer regularly? APRA reviews its macroprudential settings — including the serviceability buffer, countercyclical capital buffer, and DTI limits — at least quarterly. The July 2026 review left all settings unchanged. If the cash rate were to fall, the buffer could be adjusted downward to improve borrowing capacity.
Can I get around the serviceability buffer? No. It applies to all residential mortgage lending by ADIs (authorised deposit-taking institutions). Non-bank lenders are not bound by APRA's buffer but generally apply similar standards. The buffer is designed to protect you from over-borrowing — it is not a penalty.