Mortgage demand softened in the second quarter, as anticipated, reflecting heightened affordability challenges driven by rising borrowing costs, according to a finance firm.
However, the firm expects conditions to improve in the second half of 2026.
Stonebridge’s Mortgage Market Index reports that the average mortgage rate rose to 4.97% in the second quarter, up from 4.31% in the first quarter, a change attributed to geopolitical tensions in the Middle East.
Combined with broader affordability concerns and higher mortgage rates, these factors have contributed to an 18.5% year‑on‑year decline in mortgage applications during Q2.
The decline reflects a 20.8% drop in remortgage applications, which must be viewed against a prior surge of 45.8% year‑on‑year in Q1, when remortgage applications spiked.
Many borrowers are currently transitioning away from ultra‑low, pandemic‑era mortgage deals, a trend expected to persist throughout 2026.
At the same time, mortgage applications for home purchases fell 15.5% year‑on‑year in Q2, while first‑time buyer applications dropped 15.7%.
Average loan amounts slipped 1.8% to £209,932, although first‑time buyers increased their borrowing by 1.5% year‑on‑year, reaching £216,984.
Rob Clifford, chief executive of Stonebridge, adds: “The key focus will be the anticipated trajectory of inflation as we enter the second half of the year. I remain confident in the outlook.”
“Borrowers face a challenging environment as oil prices and UK inflation may hinder expectations of mortgage rate cuts and attractive new product offers.”
“Prior to the recent escalation, oil prices were declining sharply and faster than expected, surprising many and lowering borrowing costs. While a resolution of the conflict could see a return to that trend, we have come to expect uncertainty in international affairs.”
“Advisers should stay vigilant about the heightened remortgaging opportunities this year and proactively assist former customers in navigating borrowing cost fluctuations.”
