Fixed term mortgages are starting to look more attractive as banks slash interest rates to reflect predictions that the Reserve Bank will finally start easing its policy early in 2025.

Australia’s fifth largest lender Macquarie Bank became the latest lender to cut fixed rates last week, lowering its offer by up to 40 percentage points.

That makes it the lowest in the market for two, three, four and five year terms at 5.39 per cent.

Canstar research director Sally Tindall said that sort of a move will draw the attention of the big four banks amid tough competition for mortgage customers among Australia’s major lenders.

“[Fixed rates] still have some way to fall,” Tindall said

“The gap between the lowest fixed rate and the lowest variable rate still isn’t sizeable – it’s only 36 basis points, which is just shy of one and a half standard RBA interest rate cuts.

“The gap is likely to increase a little bit more, at least until we get to cash rate cuts themselves.”

More than 28 banks have cut at least one fixed rate in the past two weeks alone, with Macquarie’s offer now starting to approach competitive territory with variable rate loans.

Canstar estimates suggest that Macquarie’s 2-year fixed rate of 5.39 per cent still comes out behind the current lowest variable rate (5.75 per cent) when accounting for cash rate forecasts.

But the lowest 1 year fixed rate of 5.5 per cent was slightly ahead of the lowest variable rate currently in three of the four interest rates scenarios outlined by major bank economists.

The amounts were only small – between $14 and $137 – and so it’s not expected there will be a rush of borrowers looking to fix, with just under 2 per cent of the market currently doing so.

That figure may increase slightly as fixed rates continue to fall moving into 2025, making it a more attractive option to borrowers who like the idea of having certainty about repayments.

Many more borrowers will look to ride the rates roller coaster next year, with the hope that after massive increases in repayments during 2022 there will be substantial relief on the horizon.

The precise trajectory of interest rates relief is still being hotly contested though, with economists shifting their forecasts recently to the possibility that central bankers will start cuts at their first meeting of 2025 in February.

Hopes of a cut this year were dashed in September after RBA governor Michele Bullock poured cold water on the idea of near-term rate relief, pointing to stubbornness in underlying inflation.

The RBA will have access to inflation figures for the December quarter when it meets in February, a figure that is expected to show headline CPI falling back into the target band.

But underlying inflation will be higher because the CPI will be lowered by cost of living relief, including billions in energy bill subsidies handed out by the federal government this year.

Economists predict the RBA will look through the impact of government subsidies on the December data as the central bank continues to forecast at-target inflation in late 2025.

The RBA has, at least, stopped officially considering interest rate hikes, with minutes from its last board meeting showing that central bankers did not discuss the possibility of tighter policy.