However, the network said conditions were expected to improve in the second half of the year if inflation and borrowing costs ease.
Rate hikes drove slowdown
The average mortgage rate rose to 4.97% in Q2. This was up from 4.49% a year earlier, and considerably higher than the 4.31% average recorded in Q1.
Stonebridge linked the increased rates to higher oil prices resulting from the conflict in Iran and elevated swap rates.
Fewer applications for purchases
Purchase applications were down by 15.5% year-on-year in Q2, and first-time buyer applications were down by 15.7%.
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Remortgage demand was down 20.8% compared to this time last year. However, this followed the surge in remortgaging activity earlier in 2026, as borrowers came off their low fixed rates. Remortgage applications were up 45.8% annually in Q1, thus, the Q2 fall came after a strong first quarter.
Lending volumes reflected this slowdown, as the average loan amount fell by 1.8% to £209,932.
Meanwhile, first-time buyers increased their average borrowing by 1.5% to £216,984 and home purchase loans edged up 0.6% to £236,122.
Borrowing profiles relatively stable
The average loan-to-value (LTV) ratio across all borrowers held at 63%. Further, the average LTV for purchase borrowers increased from 76% to 77%. For first-time buyers, the average LTV rose from 80% to 82%.
The average purchase price dipped 0.25% to £322,725. For first-time buyers, the price dropped by 0.2% to £272,182.
Furthermore, the data showed a shift in product preferences. Two-year fixed rate mortgages accounted for 70% of business in Q2, up from 59.4% a year earlier. This mirrored feedback from brokers, who said that borrowers coming off historically low fixed rates were looking for short-term solutions.
Additionally, the share of five-year fixes fell from 32.3% to 23.2% annually.
Variable rate borrowing increased from 5.2% to 12.1%. But, overall, fixed rate deals accounted for 87.9% of applications, down from 94.8% this time last year.
Rob Clifford, chief executive of Stonebridge, said Q2 had proved a “stick or twist” moment for borrowers considering a purchase, move, or remortgage.
He further added: “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 Monetary Policy Committee 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.”
