Variable loan borrowers subsidise for fixed rate borrowers:

In case of variable loan, when rate increases, lenders adjust instalment amount with new rate. 

In case of Fixed rate loan (you can not fix the rate for entire loan term), rate is fixed at the rate higher than market rate then. 

When market rate goes higher than the fixed rate, lenders increase their rate much higher, to ‘cover the cost’.

It simply means that the variable option borrower ‘compensate’ the lender for what they are losing on fixed rate option borrowers.

Lenders and Builders Collude!

The builder’s selling price of a home, is NOT challenged by the lenders. Why? Is there a financial understanding between lender and builders?.

If an individual sells his home, the home may not stand lenders’ valuation. Hence there is a risk of loan not approved.

Builders usually ‘arrange’ the loan for the buyers through their own contact with lenders. The ‘valuation’ of the property does not come in to question for approval.

Builder can make any mark up on their price (as more the price is more benefit for builder as well as the lender). The losers are those that buy from builders.

Individual owners intending to sell do not complain much as, when the new property price is put up by builders automatically old property prices too go high.

We talk about ‘inflation’, who cares about this kind of unlawful understanding to control the property prices? (I had builders as clients in my accounting practice).