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

Stonebridge Reports Drop in Q2 Mortgage Demand Amid Higher Borrowing Costs

Stonebridge has reported a decline in mortgage demand during the second quarter of 2026, citing higher borrowing costs and affordability pressures as key factors. The network’s latest Mortgage Market Index shows significant year-on-year falls in mortgage applications between April and June.

According to Stonebridge, total mortgage applications dropped by 18.5% compared to the same period last year. Remortgage applications fell by 20.8%, while purchase applications were down 15.5%. First-time buyer applications also declined by 15.7%.

The slowdown followed a rise in mortgage rates, with the average rate reaching 4.97% in Q2. This was an increase from 4.31% in Q1 2026 and 4.74% in Q1 2025. Stonebridge noted that renewed conflict involving Iran pushed up oil prices and inflation expectations, which in turn lifted swap rates used by lenders to price mortgages.

Higher rates have squeezed affordability, leading some borrowers to delay moving or remortgaging. Remortgage activity was weaker after a particularly strong first quarter, when applications had risen 45.8% year-on-year as borrowers exited low-rate pandemic-era deals. Stonebridge expects remortgaging to remain a key feature of the market throughout 2026.

Home purchase lending also slowed, with the average loan amount across all mortgages falling 1.8% to £209,932. However, first-time buyers borrowed an average of £216,984, up 1.5% on a year earlier.

The figures reflect wider market trends, with Bank of England data showing mortgage approvals in May were 10.8% lower than a year earlier. Borrowers have increasingly favoured shorter-term products amid ongoing rate uncertainty. The share of two-year fixed-rate deals rose to 70%, up from 59.4% a year earlier, while five-year fixes fell to 23.2% from 32.3%. Variable-rate mortgages also became more popular, with their share rising from 5.2% to 12.1%.

Stonebridge indicated that market conditions could improve later in the year if inflation and funding costs ease.