Remortgages also surge as borrowers seek better deals amid declining rates
Mortgage applications increased by 9.2% year-on-year in July, according to the latest figures from mortgage and protection network Stonebridge.
The rise comes as the average mortgage rate declined to 4.44%, a drop of 62 basis points compared to the same period last year. This reduction translates to an annual saving of approximately £890 for a typical borrower.
Remortgage activity accounted for nearly 60% of all mortgage transactions during the month, reflecting a trend driven by the maturity of fixed-rate deals and homeowners seeking improved terms. Purchase loans made up 40.6% of lending, down from 50% a year earlier, as higher borrowing costs continued to impact new buyers.
“After a bruising couple of years, the mortgage market is starting to find its feet again, with falling rates boosting activity and giving a much-needed confidence boost to borrowers,” said Rob Clifford (pictured), chief executive of Stonebridge.
“While mortgage rates remain much higher than they were a few years ago, the fall over the past 12 months has been meaningful. With the potential for two further rate cuts this year, the market should continue its recovery in the second half of 2025. We’re not back to the boom times, but compared with where we were 12 months ago, this is a much healthier market.”
Fixed rate mortgages remained the preferred choice, with 96% of new borrowers selecting this option in July. The proportion is largely unchanged from last year, indicating that stability is a priority for most borrowers despite a narrow gap between fixed and tracker rates.
“Fixed rates still rule the mortgage market, with 96% of new borrowers opting for the certainty they offer in July – virtually unchanged from a year ago. It’s a clear sign that borrowers are prioritising stability over marginal savings that may never appear,” Clifford said. “Even though tracker rates are once again cheaper than fixed deals, the gap is small – clearly too small to tempt most people away from the security of a fixed monthly payment.
“When fixed rates are this cheap, they dominate. If and when that gap widens and tracker or discounted variable rates get near to one percentage point less than fixed deals, we’d expect the mix to shift and more borrowers willing to give up that security. But for now, with the rate outlook clouded by sticky inflation and global uncertainty, peace of mind is winning out.”
There has also been a shift in the length of fixed rate products chosen. Two-thirds of borrowers who fixed their rate in July opted for deals lasting three years or less, up from just under 61% a year earlier. This suggests a growing preference for flexibility in case borrowing costs decrease further.
“For many households, a two- or three-year deal feels like the best of both worlds: protection from short-term volatility without being tied in if rates fall further over the next couple of years,” Clifford said. “It’s a trend that underlines how cautious borrowers remain about committing for the long haul. Confidence is returning, but the experience of the past few years has left many wary of getting stuck paying over the odds for their mortgage.”
Repayment mortgages continued to dominate, with 81.2% of new loans structured this way in July, mirroring figures from the previous year. Interest-only borrowing remains a niche segment, typically used by wealthier clients with clear repayment plans.
“Most people prefer to tackle their debt head-on rather than defer it, even with mortgage rates much higher than in recent years,” Clifford said. “That said, all eyes will be on the FCA’s ongoing review of mortgage rules, specifically whether it decides to allow borrowers to use the sale of their property as an acceptable repayment vehicle. If that happens, it could open the door to more people exploring interest-only as an option.”
The average loan-to-value (LTV) ratio stood at 58%. Recent policy changes, such as the permanent mortgage guarantee scheme and more flexible lending criteria, may improve access for first-time buyers and could lead to higher average LTVs in the future.
“If that leads to a greater number of first-time buyers getting their foot in the ladder – which it should – then we’re likely to see average LTVs, currently at 58%, edging up,” Clifford said. “That, in turn, could spark greater competition among lenders at the higher-LTV end, creating a virtuous circle for those wanting to get a foot on the property ladder.”
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