Mortgage demand weakened in the second quarter due to higher borrowing costs and affordability pressures, although the outlook for the second half of the year remains positive, new Stonebridge data has showed.

According to the mortgage and protection network’s quarterly Mortgage Market Index, the average mortgage rate rose to 4.97% in Q2 from 4.31% a year earlier, after renewed conflict involving Iran pushed oil prices and inflation expectations higher, increasing swap rates used to price mortgages.

As a result, total mortgage applications fell 18.5% year on year, with remortgage applications down 20.8%, home purchase applications declining 15.5% and first-time-buyer (FTB) applications dropping 15.7%.

Average loan sizes slipped 1.8% to £209,932, although FTBs borrowed 1.5% more on average at £216,984. Borrowers also continued to favour shorter-term products, with the share of two-year fixed mortgages rising to 70% from 59.4%, while five-year fixes fell to 23.2%.

Many borrowers are currently "rolling off ultra-low, pandemic-era deals" and this will remain a feature throughout 2026, the index stated.

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.

Stonebridge CEO Rob Clifford 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."

Clifford added: "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.”

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