The number of mortgage applications increased by almost 23% in September compared to the same month last year, according to figures from Stonebridge.
The mortgage network found that borrowers increasingly prefer short-term loans: 64% of new fixed-rate loans are taken out for three years or less, compared to 56% a year earlier.
Borrowers chose fixed interest rates over variable rate deals more than 95% of the time.
Mortgage refinancing activity dominates the market, accounting for almost 62% of applications, compared to 57% at the same point last year.
Chief executive Rob Clifford says the increase in mortgage applications year-on-year is a “clear sign that confidence is returning”, even in the face of wider economic headwinds.
He adds: “A big driver is the decline in interest rates since their recent peak.
“The average interest rate on new loans is now 4.4%, down 32 basis points year-on-year.
“For the average borrower, this equates to an annual saving of around £432, compared to 12 months ago.
“While the Bank of England remains cautious about the future path of interest rates, current levels appear low enough to encourage borrowers to take action again.
“Combined with the large number of loans maturing in 2025, this should help support activity through the remainder of the year.”
Clifford says the significant shift in the number of borrowers opting for three years or less shows that homeowners are keeping their options open in an uncertain environment.
He adds: “While borrowers still favor the security of a fixed rate deal, most are unwilling to lock themselves into a long-term deal.
“With talk of a recession growing louder and business confidence at record lows, many households appear to be hedging their investments.
“Short-term solutions are increasingly seen as the middle ground between safety and flexibility.”