Mortgage demand softened in the second quarter of this year as affordability pressures were exacerbated by rising borrowing costs, the latest research suggests.
The Stonebridge network’s quarterly Mortgage Market Index shows the average rate rose in the second quarter of this year to 4.97%. It was 4.74% in Q1 2025 and 4.31% in Q1 of this year,
Mortgage rates fell consistently last year but between April and June this year they were back above levels last seen in Q1 2025.
The index shows how the resurgence in the Iran conflict pushed mortgage rates back above their 2025 high in Q2, weakening demand and increasing pressure on monthly payments.
Oil prices and, consequently, the swap rates used to price mortgages, had fallen significantly since mid-May until clashes restarted between Iran and the US last week.
Mortgage applications were down 18.5% year-on-year in Q2, the report shows.
Remortgages dropped 20.8%, while 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, although first-time buyers stretched to 1.5% more than last year, borrowing an average of £216,984.
The softer picture for mortgage demand was echoed by the latest Bank of England data on mortgage approvals, which 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 mortgage terms rose from 59.4% to 70%, while five year renewals dropped from 32.3% to 23.2%.
Meanwhile, 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.”
