Mortgage applications rose sharply in September as borrowers took advantage of falling rates, according to the latest Mortgage Market Briefing from Stonebridge.

The network, which facilitated more than £12 billion of lending last year, said the number of mortgage applications submitted by its advisers was 22.7% higher than in the same month last year. The average loan size increased 0.9% to £197,440, while the typical mortgage rate fell by 32 basis points to 4.4%.

Rob Clifford, chief executive of Stonebridge, said the figures reflected renewed momentum in the market. He said: “The mortgage market is shifting up a gear. Applications rose 22.7% year-on-year in September — a clear sign that confidence is returning, even in the face of wider economic headwinds.

“A big driver is the fall in rates from their recent peak. The average rate on new lending now stands at 4.40%, down 32 basis points year-on-year. For a typical borrower, that equates to around £432 in annual savings compared with 12 months ago.

“While the Bank of England remains cautious on the future path of interest rates, current levels appear low enough to spur borrowers back into action. Coupled with the large number of loans due to mature in 2025, that should help underpin activity through the remainder of the year.”

FIXED VERSUS VARIABLE

Fixed-rate products continued to dominate the market in September, with 95.4% of borrowers opting to lock in their repayments. This figure is down just over one percentage point on last year, suggesting a small but notable shift towards variable products.

Clifford said: “The dominance of fixed products tells us that, even with rates drifting lower, borrowers still prize certainty. But the picture isn’t quite as one-sided as before. The slight year-on-year dip suggests some households – even if they remain a tiny minority – are willing to take a chance on a variable deal to take advantage of future rate cuts, should they arrive.”

He added that while the Bank’s caution had reduced the appeal of variable rates, sentiment could shift quickly if policymakers adopt a more dovish stance in response to slower growth.

SHORTER FIXES GAIN FAVOUR

Borrowers continued to prefer short-term fixed deals, with 63.7% of new fixed-rate loans in September set for three years or less, up from 56% a year earlier.

“While borrowers still favour the certainty of a fixed rate deal, most are unwilling to lock themselves into a long-term deal,” Clifford said. “That’s a sizeable shift, and it shows how people are keeping their options open in an uncertain environment.

“With talk of recession growing louder and business confidence at record lows, many households appear to be hedging their bets. If the Bank of England is forced to cut rates more sharply to support the economy, shorter fixes give them more flexibility to benefit from falling borrowing costs.”

REPAYMENT DOMINATES

Repayment mortgages accounted for 81% of new loans in September, down slightly from 82% last year. Clifford said interest-only borrowing remained a niche option for borrowers with strong repayment plans or access to significant bonuses.

He added: “Looking ahead, potential changes to FCA rules – particularly around whether the sale of a property could be recognised as a valid repayment method – may broaden the appeal of interest-only. That would mark a notable development and would provide more options for borrowers, such as first-time buyers, to get onto the housing ladder.”

REMORTGAGES CONTINUE TO LEAD

Refinancing accounted for 61.5% of applications, up from 57% a year ago, as a wave of borrowers sought to secure new deals ahead of rate changes.

“Refinancing continued to dominate activity in September,” Clifford said. “That rise doesn’t necessarily point to a weak purchase market; rather, it underlines just how strong the refinancing wave has become.

“With interest rates set to remain where they are for the foreseeable future, those that have been waiting on the sidelines may be tempted into action rather than waiting for a reduction in borrowing costs that may never appear.”

DEPOSITS EDGE HIGHER

Stonebridge reported a slight dip in average loan-to-value (LTV) ratios, suggesting borrowers are putting down slightly larger deposits to access cheaper rates.

Clifford said: “While mortgage rates have eased over the past year, they remain elevated in historic terms, so households are understandably looking to reduce their monthly repayments.

“With the mortgage guarantee scheme now permanent and lenders offering more flexible terms, conditions for first-time buyers are gradually improving. If more buyers are able to get on the property ladder, we could see average LTVs edge up over time.

“That, in turn, may spark greater competition among lenders at the higher-LTV end, helping to bring rates down for those with smaller deposits.”