Is a fixed interest rate always lower than a variable rate?

In October 2022 Stella borrowed money from a lender to buy an investment property. The loan had a variable interest rate of 9.59% per annum. Stella understood she would be able to request a fixed term interest rate after settlement.

After settlement, the lender quoted fixed interest rates of 12.19% per annum for both two- and three-year terms. Stella thought that the fixed rate would be lower than the variable rate she had agreed to when she first took out the loan. Her mortgage adviser had advised her that the fixed interest rate would be approximately 7% per annum.

Stella felt that the fixed rates were unreasonable, so she complained to FSCL.


Stella said that it was unacceptable that the lender would not offer fixed rates until after settlement, and that they gave Stella no indication that the fixed rates would be significantly higher than the variable rate. Stella had assumed the fixed rates would be lower than the variable rate and could not afford the 9.59% per annum she had accepted when buying the investment property, causing her financial hardship and stress.

Stella also complained that the lender had treated the property as rural during the loan approval process, affecting how much the lender was prepared to lend to her. Stella said that the property was residential.

The lender said that they had not misled Stella into believing the fixed rate would be lower than the variable rate. The lender offered Stella a discounted fixed rate of 11.19% per annum for two or three years or a goodwill payment of $1,300 to resolve her complaint. Stella declined this offer, seeking a fixed rate lower than the variable rate.


We could not investigate Stella’s primary concern about high interest rates. Under our rules (known as our Terms of Reference), we cannot consider complaints about a lender’s interest rates except for complaints about non-disclosure, misrepresentation, or incorrect application of an interest rate.

There was no evidence that the lender had indicated to Stella or her adviser that the fixed rate would be lower than the variable rate. It appeared the adviser had given Stella general information about rates for second-tier lenders, not about the lender specifically.

We also declined to investigate Stella’s complaint about the lender only offering variable rates before settlement. The lender only offered fixed rates to existing customers, which was not a breach of any law or obligation. We appreciated that this policy was not typical for lenders in New Zealand, but it was up to the lender to set their own policy.

Under our rules, we have discretion not to consider a complaint if we consider this course of action to be appropriate. An example of this is where the complaint relates to lending policies and the complaint does not involve an allegation of maladministration or inappropriate application of policy.

The lender’s loan to value ratio (LVR), being the amount the lender was prepared to lend, for a rural property was a commercial decision that we could not interfere with. It was up to the lender to decide how much risk they were prepared to take on, subject to any LVR regulatory limits that applied. In any event, the lender had good reason to treat the secured property as being rural. It was zoned “rural lifestyle” by the local council.

We also noted that Stella’s loan was for an investment property so the responsible lending obligations under the Credit Contracts and Consumer Finance Act 2003, to make enquiries about loan affordability, did not apply.


We decided that we could not investigate Stella’s complaint. We also suggested to Stella that she should contact her adviser’s dispute resolution scheme if she had concerns about the advice her adviser gave her before she entered into the loan.

Stella accepted our decision and decided to pursue the complaint by other means.

Insights for consumers

A lender is free to decide both their interest rates and how much they will lend, subject to responsible lending obligations (if they apply) and LVR regulatory limits.

In Stella’s case, the loan was not a consumer credit contract because the loan was for an investment property.

Consumers should not assume that a lender’s fixed rates will be lower than its floating rate. While fixed rates are often lower than the floating rate, fixed rates are sometimes higher. Some lenders will allow the borrower to lock in a fixed rate prior to drawing down the loan. Consumers should talk to their lender or mortgage adviser about whether this is an option for them, particularly if the consumer wants certainty of what their repayments will be when the loan is drawn down.

A lender is also free to decide how much they will lend to a borrower.