Second Rate Hike Tipped for May 2026: Should You Fix Your Rate Now?

The RBA raised the cash rate to 3.85% on 3 February — the first hike since November 2023. Now, three of four big banks are forecasting a second hike to 4.10% at the May meeting. Meanwhile, sub-5% fixed rate deals are disappearing at an alarming pace: 12 lenders hiked 298 fixed rates in a single week. If you're on a variable rate, the question is no longer if rates will rise further — it's whether you should lock in a fixed rate before they do.

What the Big Four Banks Are Predicting

The major banks are split 3-to-1 on whether a second hike is coming in May:

Westpac had the most dramatic reversal — going from calling rate hike discussion "premature" in mid-December to now expecting a May increase. NAB has been the most consistent, predicting two hikes (February and May) since December 2025.

The Critical Date: Late April CPI Data

Everything hinges on the Q1 2026 CPI data, due in late April — just days before the RBA's 19-20 May meeting.

In a speech on 24 February, the RBA identified "greater capacity pressures in the labour market — and the economy more broadly — than we had previously assessed." Governor Michele Bullock has said the board "does not know if this will be a tightening cycle" and "can't rule anything in or out."

Fixed Rates Are Surging — The Window Is Closing

Lenders aren't waiting for the RBA. They're already pricing in a second hike through their fixed rate products:

Canstar's Sally Tindall put it bluntly: "There was a run on fixed rate hikes this week with 12 lenders hiking 298 fixed rates in the space of seven days."

CBA led the charge in mid-January with increases of up to 0.70 percentage points on 3-year fixed terms — equivalent to three standard RBA hikes priced into a single move. NAB and Macquarie followed.

Current Rates: Fixed vs Variable

Here's how the numbers compare right now for owner-occupier principal and interest loans:

Key takeaway: Variable rates are currently slightly cheaper than big bank fixed rates. But if a second hike hits in May, variable borrowers will pay more — while those who fixed will have locked in certainty.

The Impact on Your Repayments

Here's what two rate hikes (February + May) would mean for monthly repayments on a 25-year P&I loan:

For a borrower with a $750,000 mortgage — common in Sydney — two hikes would add $236 per month or $2,832 per year to repayments. That's money that could be locked away with a well-timed fixed rate.

Your Three Options — And When Each Makes Sense

Option 1: Stay Variable

Best for: Borrowers who can absorb higher repayments and want maximum flexibility.

• No break fees if you want to refinance later
• Can make unlimited extra repayments
• If ANZ is right and this is a one-off, you avoid locking in at elevated fixed rates
• 56% of mortgage holders surveyed plan to stay variable in 2026

Option 2: Fix Your Rate

Best for: Borrowers on tight budgets who need payment certainty, especially first home buyers.

• Locks in your repayments regardless of what happens in May
• Smaller lenders still offer 1-2 year fixed rates around 5.08-5.30% — below current big bank variable rates
• But break fees apply if you need to exit early, and you lose flexibility for extra repayments
• Tindall warns: "If you are thinking about fixing, know the window is closing, but don't cut corners in your due diligence."

Option 3: Split Your Loan

Best for: Borrowers who want the best of both worlds — some certainty, some flexibility.

• Fix a portion (e.g. 50-70%) for payment security
• Keep the rest variable for extra repayments and offset account access
• Only 9% of borrowers currently plan to split — it's an underused strategy
• Works particularly well if you have an offset account with a decent balance

96% of Borrowers Are Fully Exposed

Here's the stat that should get your attention: approximately 96% of outstanding mortgage debt in Australia is on variable rates. Fixed-rate loans make up just 4% of the total — the lowest level in years, down from a peak of around 40% during the COVID-era fixed rate boom in 2021.

That means almost every borrower is fully exposed to whatever the RBA does next. If you're among that 96%, every rate hike hits your repayments immediately.

The Cost of Waiting vs Acting Now

On a $600,000 mortgage with 25 years remaining, the difference between ANZ's lowest 2-year fixed rate versus the lowest in the market is $4,773 in interest over 24 months. That gap highlights why shopping around — rather than just going to your bank — matters more than ever.

What Should You Do?

There's no one-size-fits-all answer, but here's a practical framework:

1. Check your current rate. Many borrowers are paying 0.50-1.00% more than necessary simply because they haven't reviewed their loan. A quick rate comparison could save thousands. See our loyalty tax guide.
2. Run the numbers on fixing. Compare your current variable repayment with 1-2 year fixed options from smaller lenders (not just the big four). A broker can access rates you won't find online.
3. Consider a split loan. Fix 50-70% of your loan for certainty and keep the rest variable for flexibility. This hedges your bets regardless of what the RBA does.
4. Build a buffer now. If you stay variable, increase your repayments by $200/month now. This builds a redraw buffer and means a May hike won't force a sudden lifestyle change.
5. Don't wait for May. Fixed rates are being priced by what lenders expect to happen, not what has already happened. By the time the RBA moves, the best fixed deals will already be gone.

As Sally Tindall advises: "Anyone with a mortgage shouldn't be pinning all their hopes on rate cuts, but instead working out a plan for higher rates in 2026 instead of lower ones. Refinancing is one option. Haggling another."

Sources: RBA Monetary Policy Decision February 2026; RBA speech 24 February 2026; CBA, NAB, Westpac, ANZ rate forecasts; Canstar; Savings.com.au; Broker News; ABS Consumer Price Index December 2025