Fixed vs Variable in 2025: What the Rate Cycle Means for Buyers

The RBA's February 2025 decision to hold the cash rate at 4.10% came with language that markets interpreted as hawkish, not a pivot to cuts, but a signal that the board remains wary of re-igniting inflation. For borrowers navigating the fixed vs variable decision, that backdrop matters enormously.

Variable rates are currently sitting in the 6.09 to 6.44% range for owner-occupiers with standard LVR. Fixed rates for one to three years have compressed to 5.79 to 5.99% as lenders price in eventual rate cuts. The spread between the two has narrowed, at peak uncertainty in 2023 it was north of 150bps; today it sits closer to 30 to 50bps.

The strategic case for fixing today rests on two pillars: the certainty premium and the floor premium. If rates fall as markets expect over the next 24 months, fixed borrowers who locked at 5.89% will lose relative to variable borrowers. But if the RBA holds longer than expected, fixed borrowers will have protected their repayment budget precisely when household stress is highest.

For H&L buyers in particular, there's a construction loan consideration. Most lenders won't allow you to fix during the construction phase, you'll sit on variable for 12 to 18 months before switching. That means the fixed vs variable decision is really a post-construction decision, and timing it requires a view on where rates will be in mid-2026.