What on earth should you do about your mortgage right now? Whether it's for your own home or for an investment property. In this video, I'll try to explain what's happening at the moment and what your options are. I can't tell you what you should do, but I can explain the factors you should look at to make that decision. And at the end, I'll tell you what I'm doing. So what's happened is that the interest rate on fixed rate mortgages has gone through the roof over the last month. Even before that, rates had already been increasing throughout the year. Back in January, the average buy to let two-year product was at 1.69%, and by August, that are doubled to 3.43%. By mid-October, that was looking greatly low, and the best buy to let rate that you can now get is above 5%. And of course, this is generated a lot of headlines. But this is all about fixed rates. And what hasn't been mentioned as much is that variable rates are still a lot lower. For example, for an investment property, an individual can get a tracker mortgage for under 3%. It's important to understand why fixed rates have become so much more expensive, because this will help you decide whether you should be taking out a fixed now or not. So what is the reason? Well, strangely, it may sound. Many lenders don't actually have the money to lend on to you. They have to go and borrow it themselves. So that means that they need to consider what their cost of borrowing is going to be over the whole length of a fixed term. Lenders will usually pay a floating rate, plus a fixed margin on top to borrow the funds that they then lend on to you. So their cost of borrowing is always changing. That means it's risky for the lender to offer you a fixed rate. So to overcome this, they effectively pass off the risk of rate changes to someone else using something called the swap market. So what actually drives the cost of a fixed rate mortgage is the rate that the lender needs to pay in the swap market. And that swap rate reflects not just what's happening now, but what the market believes will happen in the future, which we'll come back to later. You can look at how swap rates have changed over recent weeks and months to understand why more bridges have suddenly become so much more expensive. For example, in October last year, a two-year swap cost 0.7%. The lender would then need to pay a margin on top, then make their own profit on top of that, but alone to you at 2% to 3% may have covered it. However, by October this year, the rate had ballooned to nearly 5%, meaning that lenders could only offer fixes to you at rates of 6% and above. That single number shows why fixed rates have become so much more expensive. But why haven't variable rates increased by as much? Well, that's because they are purely based on the lender's cost of funding today. They're not based on the swap market because the future doesn't matter. The lender isn't taking on any risk of rates changing, because if that does happen, they can just change the interest rate that they're charging you at any point. So that having to worry about swaps, a lender's cost of funding today might be around 2.1%. Add on a margin and their profit and alone to you at 3% might make sense. So that's essentially the difference. Variable rate and fixed rate products are based on completely different numbers. Variable rates are based on the cost of funding today, which is largely determined by the Bank of England's base rate, while fixed rate products are based on swap rates which reflect future expectations. What are these future expectations then? Well, the most important factor that influences funding costs, as everybody said, is the Bank of England's base rate, which currently is at 2.25% at the time of filming. But the swap markets are pricing in the base rate rising all the way up to 5.75% within the next year. So even though that increase hasn't happened yet, the expectation that it will is being used to price fixed rate mortgages today. Okay, okay, let's get to it. What should you actually do? Well, the first thing to say is if you have the luxury of doing nothing, nothing's a pretty good move right now. A lot of people are thinkin' panicked into taking action because they're seeing mortgage rates at 6% and thinking, wow, if the base rate goes higher, then that's gonna go up from 6%. But as you know, no, that's not true. It'll only go up from 6% if expectations of future rates go up. It sounds weird, but it's actually possible that the base rate could go up from 2.25% to 3%. And at the same time, fixed rates could go down if the market starts to believe that, okay, it's gone up, but it's gonna peak at less than the 5.75% that's currently being priced in. Another good reason to do nothing is that everything's been so crazy in recent weeks that lenders have to keep pulling products off the market, reprising them, and then putting them back again. And that means that there's less choice in the market than usual. That means that it's more likely, but not certain, that by waiting, you'll have more options to choose from. But what if you do want or needs to do something? Well, especially if you're talking about your own home that you live in, you don't want to be gambling on what may or may not happen with interest rates in the future, because no one really has a clue. If you're worried, then locking in, even an unattractive rate, might be the best option if it gives you certainty and helps you sleep at night. But I promise I tell you what I'm doing, and I'll be keeping it variable. That's because I believe that fixed rates offer relatively poor value right now, because you're locking in at a point when markets are at their most nervous and while product choice is lower than it usually is. I also believe it's more likely that expectations of the base rate are too high, rather than too low. Without wanting to go off on a whole other topic, the reason for that belief is that the reason to keep hiking up the base rate is to control inflation. And I think inflation will actually start to fall faster than most people think, although acknowledged there's not a lot of evidence for that right now. Let's say that we end up with a base rate of 3 to 4%, which I think is more likely. Well, that would probably mean that I'd end up paying 4 to 5% on my mortgage, which is better than I could get on a fix now. If on the other hand, the market is right, and the rate does reach 5 to 75%, then it'll probably take until some point next year to happen, so I'm winning until that happens. And if it peaks there and then comes back down again, I could end up winning again afterwards. But of course, I could end up being completely wrong. The main driver of all of this is to pass an inflation, which is ridiculously difficult to predict. If I'm wrong, then I'll need to live with the financial consequences of that, which I'm willing and able to do. But you might not be. Fixing now could make sense, even though you'll be locking in a higher rate, then you would have done a month ago. The best thing you can do is chat this through with an independent mortgage broker. They'll be able to take the time to understand your situation in full and present you with all your options. Of course, all this mortgage market chaos and general chaos will have an impact on property prices. So watch this video next where we explain what's happening in the market right now.