Falling rates and increased product flexibility signal improving conditions for borrowers
Mortgage applications surged by 41.7% in June, and average borrowers are saving £888 a year as rates eased, according to new data from mortgage network Stonebridge.
The figures, published in the group’s inaugural Mortgage Market Briefing, point to a rebound in borrower activity and growing confidence in the housing market as interest rates begin to soften.
Stonebridge chief executive Rob Clifford (pictured) said the mortgage rate drop, though modest, has provided welcome relief for households managing tight budgets.
“Mortgage rates may have fallen by only 62 basis points over the past year, but that modest drop is saving the average borrower £888 annually – a welcome boost at a time when household budgets remain stretched,” he said.
While the Bank of England’s next rate decision is due in August, Clifford suggested at least one more cut could be on the cards this year, further supporting borrower affordability.
Shorter fixed terms gain favour
Stonebridge’s data showed that fixed rate mortgages remained the clear preference among borrowers in June, accounting for over 95% of new loans. However, the term length borrowers are choosing has shifted.
Nearly two-thirds (63.5%) of borrowers opted for fixed rate deals of three years or less last month. Clifford pointed to this trend as evidence that consumers are looking to benefit from potential future rate cuts without locking into long-term deals. “This shift suggests growing caution about locking in for too long,” he said.
Although tracker products have become more competitive, Clifford noted that fixed rates still offer greater peace of mind in an uncertain environment. “While tracker rates are once again cheaper than fixed deals, on average, the gap isn’t wide enough to tempt most people into gambling on short-term gains.”
Interest-only lending edges up
Interest-only mortgages have seen a modest increase over the past year. Stonebridge attributes this to borrowers looking for short-term relief from high monthly payments. While still a niche segment, interest-only options may offer flexibility for borrowers who expect rates to ease in the near term.
“Interest-only borrowing remains subject to strict affordability checks and repayment planning requirements,” Clifford said. “This isn’t a return to risky lending.”
Slower purchase activity follows April rush
Purchase lending dipped year-on-year in June, but Clifford suggested this likely reflects timing issues rather than a loss of momentum. The changes to stamp duty in April may have encouraged buyers to complete transactions earlier in the year.
“This isn’t a sign that momentum in the purchase market is fading,” he stressed. “It looks like a short-term dip after a front-loaded spring.”
Loan-to-value ratios stable
Loan-to-value (LTV) ratios held steady in June, according to Stonebridge. The network expects a gradual rise in borrowing amounts as affordability improves. Recent moves by major lenders to ease stress testing requirements could allow more first-time buyers and lower-deposit borrowers to access the market.
“With lenders currently competing hard for business, we expect to see keener pricing across the market – including for those with smaller deposits,” Clifford added.
Overall, Stonebridge sees signs of stabilisation and growing confidence in the mortgage market, with the potential for further improvement if interest rates continue to decline in the second half of the year.
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