Borrower confidence appears to be returning to the UK mortgage market, with June data from Stonebridge revealing a 41.7% year-on-year surge in mortgage applications and a marked shift toward short-term fixed-rate deals, as borrowers bet on further rate cuts in the months ahead.

The mortgage and protection network’s latest Mortgage Market Briefing highlights the impact of easing mortgage rates, which have fallen by 62 basis points since June 2024.

While the drop is modest in absolute terms, Stonebridge calculates it has shaved an average of £888 off annual repayments – a welcome relief for households still grappling with stretched budgets.

Stonebridge chief executive Rob Clifford said the improving rate environment is beginning to restore affordability, and that further reductions – possibly following the Bank of England’s next monetary policy meeting in August – could reinforce that trend.

“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,” Clifford (pictured) said.

“Any further cuts should feed through into lower mortgage rates in time, which should strengthen affordability and tempt borrowers back to market in greater numbers.”

The briefing suggests that momentum is already building. Alongside the jump in application volumes, the average mortgage rate in June stood at 4.51%, down from 5.13% a year earlier, while the average loan size rose to £206,345 – a 2.6% increase on June 2024.

Fixed rates continued to dominate product choice, with 95.1% of new borrowers in June opting for the predictability of a fixed monthly repayment. However, a notable shift in term preference has emerged. Nearly two-thirds (63.5%) of borrowers now favour fixed deals of three years or less, up significantly from the same period last year.

Stonebridge attributes this to growing caution over locking into longer-term rates, amid expectations that borrowing costs could fall further.

“The hope of cheaper borrowing ahead is keeping many borrowers from fixing for the long haul,” the report states. “Shorter-term deals offer a middle ground – the security of a fixed rate, without the long-term commitment.”

Interest-only borrowing also ticked upward, rising from 17.5% to 18.7% over the year. Clifford suggested this could reflect continued pressure from high mortgage rates, with some borrowers using interest-only arrangements to create temporary financial breathing space.

However, he cautioned that such products remain subject to strict affordability rules and long-term repayment planning.

While remortgage activity has strengthened – accounting for 59.1% of lending in June – purchase lending dropped to 40.9%. Stonebridge believes this dip reflects the pull-forward effect of stamp duty changes introduced in April, rather than any deterioration in market sentiment.

“This isn’t a sign that momentum in the purchase market is fading,” the briefing notes. “On the contrary, it looks like a short-term dip after a front-loaded spring.”

Average loan-to-value ratios remained broadly stable in June, but the network expects these could rise in the coming months as affordability improves and stress testing rules are relaxed by major lenders.

With banks competing more aggressively for business, Stonebridge predicts keener pricing will emerge, especially for buyers with smaller deposits.

“Buyer confidence is quietly building and the fundamentals are moving in the right direction,” Clifford said. “If rates continue to soften, the signs suggest we could see a strong resurgence in demand over the summer and into the autumn.”