As expected, mortgage demand softened in the second quarter due to affordability pressures exacerbated by rising borrowing costs, the latest figures from Stonebridge reveal.
Mortgage rates fell consistently last year but between April and June this year they were back above levels last seen in Q1 2025, which forced some borrowers to pause.
Alongside wider affordability pressures, higher mortgage rates largely explain the dent in mortgage applications, which slid 18.5% year-on-year in Q2. A 20.8% drop in remortgages contributed to this but must be seen in the context of an enormous remortgaging wave that arrived in the first quarter, when remortgage applications were up 45.8% year-on-year. Many borrowers are currently rolling off ultra-low, pandemic-era deals and this will remain a feature throughout 2026.
Meanwhile, mortgage applications for home purchase declined 15.5% annually in Q2 alongside a 15.7% fall in first-time buyer applications. Loan amounts were down 1.8% on average to £209,932 though first-time buyers stretched to 1.5% more borrowing than last year at £216,984.
The softer picture for mortgage demand was echoed by the latest Bank of England data on mortgage approvals, which earlier this month reported a 10.8% annual decline for May.
Rate volatility has also continued to push more borrowers towards shorter two-year fixes and variable rate deals. The share of two-year terms rose 10.6pp from 59.4% to 70%, while five-year rates dropped 9.1pp from 32.3% to 23.2%. The share of variable rates more than doubled from 5.2% to 12.1%, while the share of fixed term deals fell from 94.8% to 87.9%.
Rob Clifford, chief executive at Stonebridge, said: “The second quarter was really a stick-or-twist moment for those thinking of moving, buying or remortgaging, and there’s no doubt we’ve seen activity slow a little as expected. However, the key thing to keep your eye on is the expected path for inflation as we move into the second half of the year. I am confident about the outlook.
“Borrowers are being put in a difficult position as oil prices and inflation in the UK can undermine the prospect of mortgage rate reductions and seductive, new product pricing.
“Before the latest flare-up, oil had been falling hard and much faster than expected. This had caught everyone by surprise and dragged borrowing costs down. It’s not impossible that we could find ourselves back on that path if the conflict settles down again but, if anything, we’ve learned to expect the unexpected when it comes to international affairs.
“Andrew Bailey has struck a cautionary tone recently and rising oil prices won’t encourage the MPC to drop rates, but it’s important to remember that mortgage rates and the Bank of England base rate are not the same thing. Swap rates, which the market uses to price mortgages, rose this year while the base rate went nowhere. So borrowing costs can fall back without the Bank of England doing anything and that’s exactly what had been happening until last week.
“Advisers need to remain alive to the elevated remortgaging opportunities this year, and make sure they’re as proactive as possible in helping past customers navigate movements in borrowing costs.”
