The new Martin Lewis Money Show returned tonight on ITV to answer your burning questions about finance as the cost of living continues to rise. On tonight's show, the money saving expert gave his verdict on whether you should stick with a variable mortgage rate or go with a fixed one.
Following the mini budget, mortgage rates began to rise and many fixed rate deals were pulled from the market. Martin took questions from viewers about their mortgage queries live on the show, and was joined by a mortgage regulator in the audience who also passed on her advice.
Martin received a question from a woman called Linda asking whether her son should stick with a fixed-mortgage rate or not. "If your mortgage rate is higher than the after tax rate that you could earn on savings then you usually want to over pay the mortgage. If your savings rate is higher than the mortgage, you usually want to save."
READ MORE: People yet to receive disability cost of living payment, says Martin Lewis
He continued: "Even if your mortgage rate is a little bit lower than the savings, it probably pays off. There are a couple of caveats for everybody out there. First of all, make sure you can overpay without penalties. Most people can do at least 10% of their mortgage value a year without penalties, but always check because the penalties would kibosh it. Secondly, make sure you've got an emergency fund three to six months worth of bills put aside."
Another viewer asked Martin whether they should stay on a fixed rate or hold out for the rates to drop. "The bottom line is the Bank of England base rate, the UK interest rate. If you are on a variable or discount or tracker mortgage, the amount that you pay depends on that base rate. The top line is the cheapest two year fix that is available on the market for someone with a 60% LTV, the very cheapest."
Martin said that the two lines were "not in sync in recent times". "The fixed rates that you can get do not depend on the Bank of England base rate," he explained. "They depend on something called swap rates which are mainly based on the guilt rate, which you will have heard about in the news. The guilt rate is the cost of UK government borrowing.
"So, what happened in that mini budget, either caused by the mini budget or some would argue coincidental apparently with the mini budget, is UK Government borrowing got much more expensive and that translated almost immediately to mortgage rates. That two-year fix is effectively based on the city's prediction of future interest rate whereas this is the current interest rate.
"Some people are thinking we may now be peaking at the fixed rate, in which case you may want to hold on to a variable rate. A couple of weeks ago, the advice was grab a cheap fix when you can because rates are going up very quickly but the entire macro-economic situation has now changed. Now, we're probably moving into hold on a little bit."
Martin was joined by mortgage regulator Liz in the audience, who offered her own advice. She said: "Now you've got to be thinking about the difference between a discounted rate and a fixed rate at the moment is sort of two and a half, sometimes even three percent. So, if you go for the fixed rate, all you're guaranteeing is you're paying more."
She continued: "If you go for the discount rate you'll definitely be paying less at the moment and then it's just the question mark of how much rates may increase in the future, but all the time you're paying less than the fixed rate is today, you're going to save a bit against any increases that may go above the fixed rate later on. So, it comes down to attitude to risk really."
Martin also asked Liz about her views on 10 year mortgages, to which she said that you should "look to see if there are any features that give you some flexibility." She mentioned a feature called 'portability' which allows you to move the fixed rate onto a new property if you decide to move in that period of time. "It gives you more options," she said.
READ NEXT:
Martin Lewis shares one simple thing everyone can do to their boiler to save money
Martin Lewis flags little-known rule that could add thousands to state pension
Martin Lewis issues advice on whether you should overpay on your mortgage
Martin Lewis' stark advice to first-time buyers who are ready to buy a house
