Mortgage applications increased 7% year-on-year in October, while average mortgage rates ticked down by 21 basis points to 4.43%, a report says.
According to Stonebridge’s Mortgage Market Briefing, the average loan size in October fell slightly to £195,068, which compares to £197,200 last year.
Rob Clifford, chief executive of Stonebridge, said the increase in mortgage applications shows that the “market is still moving forward despite wider economic uncertainty and speculation around the Autumn Budget”.
He continued: “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.
“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.”
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Fixed rates are dominant choice but uptick in variable rates
Fixed rates continued to be the dominant choice for borrowers, with 94.8% opting for such a product. This is a slight dip on 97.1% last year.
Looking at variable rates, around 5.2% of borrowers chose a variable deal, which is up from 2.9% the same time last year.
Clifford said: “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.
“One reason fixed rates continue to dominate is the Bank of England’s cautious approach to cutting interest rates.
“However, if the bank begins signalling that it is prepared to go further and faster than markets currently expect, variable rate products could stage a comeback.”
Shorter-term fixed rates seeing ‘surge in demand’
Regarding product term length, the most popular product was a 2-3-year fixed rate term, at 42.8%, which is a rise from 35.6% last year.
This was followed by five-plus-year terms at 23.6%, a slight drop from 27.6% in the same period last year.
Around 21.5% opted for a 1-2-year term, which compares to 20.2% in October last year.
Clifford explained that although internet rates have fallen over the past year, the Bank of England has “maintained a cautious tone, which has discouraged many borrowers from opting for variable rate deals”.
“What we have seen instead is a surge in demand for short-term fixed rates. These products offer the best of both worlds – protection from immediate rate volatility without being locked in for the long term. Many borrowers see this as a sensible middle ground, allowing them to benefit from potential future rate reductions while retaining a degree of certainty.
“But since August’s unexpectedly low inflation reading, sentiment has shifted. Markets are now pricing in another rate cut before the end of the year, rather than waiting until spring. If that materialises, we could see more borrowers choosing to lock into longer-term deals to secure an attractive rate in case the outlook shifts again,” he said.
Repayment vs interest-only split ‘largely static’
Looking at the split between repayment and interest-only products, Stonebridge found that this has “remained largely static” in the past year.
Interest-only makes up around 18.8% of deals, with repayment making up the majority at around 81.2%.
Clifford said typically interest-only is reserved for those with higher incomes, sizeable bonuses or solid repayment plans in place.
“However, if the Financial Conduct Authority (FCA) 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. The regulator is considering whether sale of property should be considered a suitable repayment vehicle, which would allow many more borrowers to qualify for these types of loans. That could be transformative for their popularity,” he noted.
In a speech yesterday, FCA CEO Nikhil Rathi said that while interest-only should not be a mass-market product, part interest-only could support earlier homeownership.
Remortgage business continuing to climb
Stonebridge found that 37.5% of lending was purchase business and 62.5% was for remortgage.
This compares to 42.7% of purchase business and 57.3% for remortgage in the same period last year.
“This has been a strong year for refinancing, with around 1.6 million fixed rate loans up for renewal this year. It’s therefore no surprise that remortgages and product transfers made up nearly two-thirds of activity in October.
“At first glance, the data might suggest that the purchase market is subdued, but that’s not the case. 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.
“Looking ahead, if the Bank of England’s Monetary Policy Committee cuts rates another two or three times, as some expect, that should help restore balance. Lower rates tend to boost confidence among both movers and first-time buyers, which could boost purchase activity in the market,” Clifford noted.
Average LTVs fall to lowest level since March
Average loan to values (LTVs) stood at 57%, which compares to 57.2% in October last year.
However, there has been a slight downward trend that started in August. Since August, the average LTV has gone from 58.6% to 57.4% in September.
Clifford said average LTVs have declined for the second consecutive month in October and reached their lowest level since March, although the month-on-month changes remain marginal.
“This is likely a result of flat house prices combined with borrowers choosing to put down larger deposits to secure lower rates. 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.
“Conditions for first-time buyers, who typically have smaller deposits, are gradually improving. If that continues, we could see average LTVs begin to edge higher again. But that shift will take time, and for now the trend reflects a cautious mindset among borrowers,” he explained.
