The fall in mortgage activity for home purchase accelerated in Q3 as higher borrowing costs continued to impact budgets, Stonebridge reports today in its quarterly Mortgage Market Index.
However, rising numbers of applications for remortgage helped slow the decline in overall mortgage activity year-on-year, data from the mortgage and protection network shows.
The Iran conflict continued to stoke inflation fears in the third quarter which, combined with concerns over public borrowing, have held mortgage rates higher. Today, swap rates — which are used to price mortgages — are even higher than the peak that followed the initial US action back in February.
Rising borrowing costs have placed a strain on some in the housing market as higher monthly repayments have reduced spending power. As a result, mortgage applications for home purchase and from first-time buyers were down 18.2% and 18.6% respectively year-on-year in Q3. This compares with annual falls of 15.5% and 15.7% respectively in Q2.
One positive feature was the average mortgage rate falling slightly in Q3 to 4.92%, down from 4.97% in Q2, but this is still 0.55 percentage points higher year-on-year, with first-time buyers (FTBs) facing average rates of 5.11%, up by the same margin.
Despite that, FTBs were borrowing 4.2% more on LTVs that were 1.8 percentage points higher year-on-year at 81.4%.
The pressure on budgets can also be seen in the shift to short-term and variable-rate products. Fixed rates are normally favoured by most borrowers but a combination of variable rates and shorter terms tend to be favoured as expectations increase that rates may fall and homeowners don’t want to be locked into higher rates long term.
The proportion of variable rate mortgages has almost trebled in a year from 4.9% to 12.5%. The share of fixed rate mortgages was 87.5%, down from 95.1% in Q3 2025. This split was largely unchanged quarter-on-quarter.
The proportion of 2Yr deals was 67.5% in Q3, up 6.2 percentage points from 61.4% a year earlier. However, this softened slightly from the 70% of borrowers opting for 2Yr fixed terms in Q2 of this year.
Overall, mortgage applications were down 7.7% annually in the third quarter of this year but that marks a welcome and substantial slowdown in the trend, since applications fell 18.5% annually in Q2. This is due to the 0.8% rise year-on-year in applications for remortgage in Q3, a dramatic turnaround from the 20.8% annual decline seen in the previous quarter.
Rob Clifford, Chief Executive at Stonebridge, said: “It’s a mixed picture for the housing market as elevated borrowing costs continue to put pressure on the volume of transactions and house prices.
“Meanwhile, the volume of remortgages continues to feed off a wave of ultra-low deals taken out during the pandemic era, which are now expiring.
“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.
“Whether they’re buying property or remortgaging, mortgage advisers are alive to the importance of this approach and we know many who are diligently supporting their customers in this way. It costs nothing and, should rates rise further, it could knock hundreds of pounds a month off repayments.
“Everyone needs to be proactive to put themselves in the best possible position, and it’s no surprise that two-year mortgage deals continue to dominate. Borrowers don’t want to be tied into expensive mortgage products should the market ease and mortgage rates fall.”
