Mortgage applications rose 7% year-on-year in October as borrowers continued to respond to falling rates and renewed competition among lenders, according to the latest Mortgage Market Briefing from Stonebridge.

Drawing on data from its advisers, who arranged more than £12bn of lending last year, the report shows that the average loan size fell slightly by 1.1% to £195,068, while the average mortgage rate dropped by 21 basis points to 4.43%.

Rob Clifford, chief executive of Stonebridge, said: “The fact that mortgage applications are up more than 7% year-on-year shows the market is still moving forward despite wider economic uncertainty and speculation around the Autumn Budget.

“One of the key reasons is that lenders continue to compete aggressively. Many of the major high street names have reduced rates in recent weeks, meaning the average borrower is now saving around £300 a year compared to 12 months ago.

“That may seem a small saving, but it all counts at a time where many people are still struggling with the rising cost of living.”

He added that further rate cuts could add momentum going into 2026. “If we see another rate cut before the end of the year, as expected, that could provide even more momentum as we head into 2026.

“Combined with the large volume of fixed-rate loans due to mature this year and next, we expect activity to strengthen further over the coming 12 months.”

FIXED RATES REMAIN DOMINANT

Fixed-rate products continue to account for the majority of borrowing, although Clifford said there has been a “small yet notable rise” in variable-rate uptake. “Fixed deals offer the security of predictable repayments, which is particularly attractive at a time of uncertainty.

“However, a growing group of borrowers appear willing to accept the risk of fluctuating payments, betting that rates will fall further as widely forecast,” he said.

He added that the Bank of England’s cautious tone on interest rate cuts had so far prevented a larger shift towards variable products, but that a stronger signal of faster cuts could prompt “a comeback” for variable-rate lending.

SHORT-TERM FIXED DEALS GAIN FAVOUR

Clifford noted a surge in demand for short-term fixed-rate mortgages. “These products offer the best of both worlds – protection from immediate rate volatility without being locked in for the long term,” he said.

“Many borrowers see this as a sensible middle ground, allowing them to benefit from potential future rate reductions while retaining a degree of certainty.”

He added that if the Bank delivers another rate cut before year-end, more borrowers could look to secure longer-term fixes to lock in lower rates before the outlook shifts again.

INTEREST-ONLY COULD SEE REBOUND

Interest-only lending continues to make up just under a fifth of total mortgages, but Clifford suggested that this could change if regulators loosen the rules. “If the Financial Conduct Authority makes it easier to apply for an interest-only loan as part of its review of mortgage rules, we could see that tick up over time,” he said.

“The regulator is considering whether sale of property should be considered a suitable repayment vehicle, which would allow many more borrowers to qualify. That could be transformative for their popularity.”

REFINANCING STILL DOMINATES

Remortgages and product transfers accounted for nearly two-thirds of lending activity in October, driven by the wave of fixed-rate loans due to mature this year. “At first glance, the data might suggest that the purchase market is subdued, but that’s not the case,” Clifford said.

“Purchase lending has exceeded last year’s levels in almost every month so far this year. It’s simply the sheer volume of loans maturing in 2025 that has tilted the market towards refinancing.”

He added that further cuts by the Bank of England’s Monetary Policy Committee “should help restore balance” and boost confidence among movers and first-time buyers.

BORROWERS OPT FOR LOWER LTVs

Average loan-to-value ratios declined for the second consecutive month in October, reaching their lowest level since March. Clifford said this reflected both stable house prices and a desire among borrowers to reduce repayments where possible.

“While mortgage rates have eased over the past year, they are still high by historical standards, so it’s logical for households to reduce their repayments if they are in a position to,” he said.

He added that conditions for first-time buyers were improving, but any rise in LTVs would likely be gradual. “For now, the trend reflects a cautious mindset among borrowers.”