Stonebridge reported weaker mortgage demand in the second quarter as higher financing costs and affordability pressures weighed on the market.
The network said conditions could improve later this year if inflation and financing costs decrease.
Stonebridge’s latest Mortgage Market Index shows that mortgage applications fell by 18.5% year-on-year between April and June. The number of remortgage applications fell by 20.8%, while the number of purchase applications fell by 15.5%. The number of applications for starters fell by 15.7%.
Stonebridge said the slowdown followed a rise in mortgage rates. The renewed conflict involving Iran pushed up oil prices and inflation expectations. That raised the swap rate, which lenders use to price mortgages.
The average mortgage interest rate reached 4.97% in the second quarter. That was up from 4.31% in the first quarter of 2026 and 4.74% in the first quarter of 2025. Higher interest rates put pressure on affordability and led some borrowers to postpone moving or remortgaging.
Mortgage refinancing activity was weaker after a particularly strong first quarter. Applications were up 45.8% year-on-year as pandemic-era borrowers got cheap deals. Stonebridge expects refinancing to remain a key feature of the market through 2026.
Home mortgages also slowed. The average loan amount for all mortgages fell by 1.8% to £209,932. However, new buyers borrowed an average of £216,984, up 1.5% from a year earlier.
The figures reflect broader market trends. Data from the Bank of England shows that mortgage applications were 10.8% lower in May than a year earlier.
Borrowers also preferred shorter-term products as interest rate uncertainty persisted. The share that opted for two-year fixed-rate deals rose to 70%, up from 59.4% a year earlier. Five-year fixes fell from 32.3% to 23.2%. Variable rate mortgages also became more popular. Their share rose from 5.2% to 12.1%.
Stonebridge CEO Rob Clifford said the second quarter was a “stick-or-twist moment” for many borrowers. However, he said he remained optimistic about the second half of the year.
Clifford says: “The second quarter was very much a stick-or-twist moment for those considering moving, buying or remortgaging, and there is no doubt that we have seen activity slow a bit as expected. However, the key thing to watch is the expected path for inflation as we enter the second half of the year. I am confident in the outlook.”
Clifford said falling oil prices had lowered mortgage financing costs before renewed geopolitical tensions roiled markets.
“The mortgage rate and the Bank of England base rate are not the same,” he added. “Swap rates, which the market uses to price mortgages, have risen this year, while base rates have gone nowhere. So borrowing costs could fall back without the Bank of England doing anything, which is exactly what happened until last week.”