The UK mortgage market is regaining its footing after a turbulent two years, with signs of renewed borrower confidence and increased activity driven by falling rates, according to the latest Mortgage Market Briefing from Stonebridge.

The July 2025 report from the national mortgage and protection network – which facilitated more than £12bn in lending last year – presents one of the most current snapshots available of market conditions. Based on data drawn from its advisers across the country, the update shows a 9.2% year-on-year rise in mortgage applications and a meaningful drop in the average mortgage rate, which now stands at 4.44%, down 62 basis points from a year ago.

Rob Clifford (pictured), chief executive of Stonebridge, described the figures as evidence that the market is beginning to recover its momentum. “Applications jumped 9.2% in July compared with a year ago, proof that cheaper borrowing is starting to grease the wheels of the market,” he said.

“The average rate on new loans has dropped to 4.44% – 62 basis points lower than last July. While mortgage rates remain much higher than they were a few years ago, the fall over the past 12 months has been meaningful. On a typical 25-year term, that’s worth around £890 a year back in borrowers’ pockets.”

While he acknowledged the market was still short of its former highs, Clifford said the outlook was “much healthier” than this time last year. With two further rate cuts forecast for the remainder of 2025, Stonebridge expects the recovery to gather pace in the second half of the year.

REMORTGAGING GROWTH

Among the key behavioural shifts identified in the briefing is a surge in remortgaging activity. In July, remortgages accounted for 59.4% of new business, up sharply from 49.3% a year earlier. The uptick reflects the continued impact of fixed-rate maturities – 1.8 million deals are set to expire this year – as borrowers seek to secure more competitive products or restructure their finances to reflect new priorities.

The cautious mood among borrowers is also evident in product preferences. Despite 96% of applicants choosing fixed rates in July – unchanged from a year ago – two-thirds opted for deals lasting three years or less, up from just under 61% in July 2024. The figures suggest that while borrowers still favour the stability of fixed rates, many are reluctant to lock in for the long term amid expectations of further rate reductions.

FIXED COMPROMISE

Clifford noted that short- and medium-term fixes offered a pragmatic compromise. “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,” he said.

In terms of repayment structures, the briefing shows little appetite for interest-only borrowing, with 81.2% of new loans on a repayment basis – virtually unchanged from July 2024. Stonebridge suggests this reflects a desire among most borrowers to reduce their debt in real terms despite higher mortgage costs.

Interest-only products remain largely the preserve of wealthier clients with clear exit strategies, and the briefing notes that any shift will depend on the outcome of the FCA’s ongoing review of acceptable repayment vehicles.

LTV RATIOS

Meanwhile, the average loan-to-value ratio stood at 58.9% in July, following a sharp dip to 54.3% in March. Stonebridge anticipates a gradual increase in LTVs, particularly at the higher end of the market, fuelled by the now-permanent mortgage guarantee scheme, looser stress testing, and improving affordability for first-time buyers.

“If that leads to a greater number of first-time buyers getting their foot in the ladder… then we’re likely to see average LTVs edging up,” the briefing said.

Though purchase activity remains subdued at 40.6% of total lending, down from 50% a year earlier, the network expects momentum to build in the coming months as rate cuts filter through. Stonebridge believes the combination of easing costs, steady inflation, and growing consumer confidence may yet bring a fresh wave of purchasers back to the market before the end of the year.