The network said conditions could improve later this year if inflation and funding costs ease.

Stonebridge’s latest Mortgage Market Index shows mortgage applications fell 18.5% year-on-year between April and June. Remortgage applications dropped 20.8%, while purchase applications fell 15.5%. First-time buyer applications were down 15.7%.

Stonebridge said the slowdown followed a rise in mortgage rates. Renewed conflict involving Iran pushed up oil prices and inflation expectations. That lifted swap rates, which lenders use to price mortgages.

The average mortgage rate reached 4.97% in Q2. That was up from 4.31% in Q1 2026 and 4.74% in Q1 2025. Higher rates squeezed affordability and led some borrowers to delay moving or remortgaging.

Remortgage activity was weaker after a particularly strong first quarter. Applications had risen 45.8% year-on-year as borrowers came off low-rate pandemic-era deals. Stonebridge expects remortgaging to remain a key feature of the market throughout 2026.

Home purchase lending also slowed. The average loan amount across all mortgages fell 1.8% to £209,932. However, first-time buyers borrowed an average of £216,984, up 1.5% on a year earlier.

The figures reflect wider market trends. Bank of England data showed mortgage approvals in May were 10.8% lower than a year earlier.

Borrowers also favoured shorter-term products as rate uncertainty continued. The share choosing two-year fixed-rate deals rose to 70%, up from 59.4% a year earlier. Five-year fixes fell to 23.2%, from 32.3%. Variable-rate mortgages also became more popular. Their share rose from 5.2% to 12.1%.

Rob Clifford, chief executive of Stonebridge, said the second quarter had been a “stick-or-twist moment” for many borrowers. However, he said he remained optimistic about the second half of the year.

Clifford says: “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 said falling oil prices had been reducing mortgage funding costs before renewed geopolitical tensions unsettled markets.

“Mortgage rates and the Bank of England base rate are not the same thing,” he added. “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.”