The mortgage and protection network’s latest Mortgage Market Index shows purchase applications fell 18.2% year-on-year in Q3 2026, accelerating from a 15.5% decline in the previous quarter.

Applications from first-time buyers were similarly weak, dropping 18.6% year-on-year compared with a 15.7% fall in Q2.

The figures come as mortgage rates remain significantly higher than a year ago. The average mortgage rate in Q3 was 4.92%, Stonebridge found, down slightly from 4.97% in Q2 but 0.55 percentage points higher than the 4.37% recorded a year earlier.

First-time buyers faced an average rate of 5.11%, also 0.55 percentage points higher year-on-year.

Stonebridge said the combination of elevated borrowing costs, inflation concerns and uncertainty around public finances had continued to weigh on the mortgage market.

Swap rates have also risen above the peak reached following the initial US action in February.

Higher rates have increased monthly repayments and reduced the spending power of prospective buyers, putting further pressure on transaction volumes.

Despite the weaker market, first-time buyers were taking on larger loans. The average FTB mortgage increased by 4.2% year-on-year to £221,605, while the average LTV rose from 79.5% to 81.4%.

Across the wider purchase market, the average loan increased 2.8% to £238,875, while the average purchase price rose 1.2% to £324,702.

The biggest improvement came in remortgaging, with applications rising 0.8% year-on-year in Q3.

That marks a significant turnaround from the 20.8% annual decline recorded in Q2 and helped reduce the fall in total mortgage applications to 7.7% year-on-year, compared with an 18.5% decline in the previous quarter.

Stonebridge said the improvement reflects the growing number of ultra-low fixed-rate mortgages taken out during the pandemic that are now reaching the end of their terms.

The average remortgage rate stood at 4.85% in Q3, up 0.57 percentage points from a year earlier. The average remortgage loan also increased by 5.3% year-on-year to £202,349.

The data also highlights a notable change in borrowers’ product preferences as households respond to uncertainty over the future direction of interest rates.

The proportion of mortgages taken on variable rates almost trebled over the year, rising from 4.9% in Q3 2025 to 12.5% in Q3 2026.

Fixed-rate mortgages accounted for 87.5% of applications, down from 95.1% a year earlier.

Among borrowers opting for fixed rates, two-year products became increasingly popular. They accounted for 67.5% of fixed-rate applications in Q3, up from 61.4% a year earlier, although this was slightly below the 70% recorded in Q2.

The shift suggests borrowers are reluctant to lock themselves into longer-term deals while hoping mortgage rates could fall in the future.

Rob Clifford, chief executive at Stonebridge, said the market presented a “mixed picture” as higher borrowing costs continued to weigh on transaction volumes and house prices.

He said the remortgage market was being supported by the expiry of ultra-low mortgage deals taken out during the pandemic.

“It’s so hard to predict where inflation and borrowing costs will go next but, one thing’s for sure, borrowers will be better protected if they take the opportunity to lock in rates as early as possible,” Clifford said.

He added that mortgage advisers were increasingly helping customers secure rates ahead of potential further increases, saying this could save borrowers “hundreds of pounds a month” if rates subsequently rise.

Clifford said the continued popularity of two-year mortgages reflected borrowers’ desire to avoid being tied into expensive deals if the market improves and rates fall.