According to Stonebridge’s Mortgage Market Briefing for July, the average loan size stands at £207,439, a slight rise from £205,854 in the same period last year.
The report added that the average mortgage rate has declined by 62 basis points (bps) since July last year.
Rob Clifford (pictured), chief executive of Stonebridge, said that after a “bruising couple of years”, the mortgage market was “starting to find its feet again, with falling rates boosting activity and giving a much-needed confidence boost to borrowers”.
He said the increase in mortgage applications showed that “cheaper borrowing is starting to grease the wheels of the market”.
Clifford added that while mortgage rates are still higher than they were a few years ago, the fall over the past year has been “meaningful”.
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He said that over a typical 25-year mortgage term, the improvement in pricing was worth around £890 per year in borrowers’ pockets.
“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,” Clifford noted.
Fixed rates ‘still rule the mortgage market’
Clifford said fixed rates “still rule the mortgage market”, with 96% of new borrowers opting for this kind of deal in July. This is in line with figures from last year.
He noted that this was a “clear sign that borrowers are prioritising stability over marginal savings that may never appear”.
“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,” Clifford said.
More borrowers choosing rates of three years or fewer
Looking at product length preference, around two-thirds wanted a deal of three years or fewer.
The report found that around 41.6% opted for a 2-3-year deal and 24.5% chose a 1-2-year deal. This is up from 39.4% and 21.5% last year respectively.
Only 2% selected a 3-4-year deal, while 8.7% chose a 4-5-year deal and 23.2% selected a five-year-plus deal.
“That shows people still want the certainty of a fixed rate, but they increasingly want the flexibility to move if the cost of borrowing keeps edging down. 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.
“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.”
No ‘meaningful shift’ in interest-only
The report found that 18.85% had chosen an interest-only deal, in line with 18.5% last year, while the majority – 81.2% – selected a repayment mortgage.
Clifford said that despite “affordability pressures”, there was not a “meaningful shift” towards interest-only, showing that this still remains a “niche part of the market”.
“This stability shows new borrowers are committed to paying down capital from the start, not using interest-only as a workaround. It remains largely the preserve of wealthier borrowers with a clear exit plan, rather than a mainstream option. Most people prefer to tackle their debt head-on rather than defer it, even with mortgage rates much higher than in recent years.
“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,” he noted.
Purchase activity down but improvement expected
In July, the purchase-remortgage mix changed compared to last year, with purchases coming to 40.6%, down from 49.3% in the same period last year.
Remortgage loans accounted for 59.4% of business, a rise from 50.7% in July last year.
Clifford said the reversal shows that the market is “still finding its feet after a period of heightened borrowing costs”.
“While mortgage rates have fallen since last year, they remain significantly higher than a few years ago, keeping some would‑be purchasers on the side lines.
“At the same time, 1.8 million fixed rate deals are set to mature this year. That’s driving a surge in remortgage activity as borrowers look to secure competitive deals or adjust their borrowing to fit changing circumstances.
“But with further rate cuts widely expected, the conditions are aligning for purchase lending to regain momentum in the months ahead. The summer and autumn could well see a renewed wave of buyers returning with fresh confidence, especially if borrowing costs fall further,” he explained.
Average LTV could rise
The average loan to value (LTV) has stayed roughly stable at around 58.9%, which is in line with 59.4% last year.
The average LTV dropped in March to 54.3%, but has since rebounded to around 58-59%.
Clifford said that as the mortgage guarantee scheme was now permanent, the Bank of England was offering more flexibility around loan-to-income (LTI) limits, there is more flexible stress testing, there are improved mortgage rates and there is a drive to increase housebuilding, conditions for first-time buyers were improving.
“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.
“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,” he noted.
