Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

Higher Borrowing Costs Slow UK Mortgage Demand in Q2, Reports Stonebridge

Mortgage applications in the UK fell by 18.5% year-on-year in the second quarter of 2026, according to Stonebridge. The network attributed the decline to rising borrowing costs and affordability pressures, but noted that conditions could improve later in the year if inflation and borrowing costs ease.

Rate Increases and Application Trends

The average mortgage rate rose to 4.97% in Q2 2026, up from 4.49% a year earlier and 4.31% in Q1. Stonebridge linked the increase to higher oil prices resulting from the conflict in Iran and elevated swap rates. Purchase applications dropped by 15.5% year-on-year, while first-time buyer applications fell by 15.7%.

Remortgage demand was down 20.8% compared to the same period last year. However, this followed a surge in remortgaging activity in Q1 2026, when remortgage applications were up 45.8% annually as borrowers exited low fixed rates. The average loan amount fell by 1.8% to £209,932 in Q2. First-time buyers increased their average borrowing by 1.5% to £216,984, and home purchase loans edged up 0.6% to £236,122.

Borrowing Profiles and Product Preferences

The average loan-to-value (LTV) ratio across all borrowers remained at 63%. For purchase borrowers, the average LTV increased from 76% to 77%, and for first-time buyers, it rose from 80% to 82%. The average purchase price dipped 0.25% to £322,725, while the average price for first-time buyers dropped by 0.2% to £272,182.

There was also a shift in mortgage product preferences. Two-year fixed rate mortgages accounted for 70% of business in Q2, up from 59.4% a year earlier. The share of five-year fixes fell from 32.3% to 23.2% annually. Variable rate borrowing increased from 5.2% to 12.1%. Overall, fixed rate deals made up 87.9% of applications, down from 94.8% last year.

These trends may be relevant for letting agents and inventory clerks monitoring market activity, as changes in mortgage demand and borrowing profiles can influence rental demand and property turnover.