UK Finance has reported a further decline in mortgage arrears and possessions in the fourth quarter of 2025 with overall levels remaining well below historic peaks.
There were 80,490 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in Q4, down 4% on the previous quarter.
This represents just 0.92% of all homeowner mortgages. Within that figure, 27,780 accounts were in the lightest arrears band – between 2.5% and 5% of the balance – also down 4% quarter-on-quarter.
Buy-to-let arrears saw a sharper improvement, falling 9% over the quarter to 9,520 cases, equivalent to 0.5% of outstanding BTL mortgages. Of those, 3,480 were in the lightest arrears category, down 7%. For context, arrears across homeowner and BTL mortgages peaked at 216,400 during the financial crisis in Q2 2009.
POSSESSIONS DECLINE
Possessions also declined. In Q4, 1,210 homeowner properties were taken into possession, 13% fewer than the previous quarter. BTL possessions fell 14% to 770. UK Finance noted that overall possession numbers remain significantly below long-term averages and broadly in line with pre-pandemic levels.
More than two-thirds of possessions relate to mortgages arranged at least 10 years ago, with lenders continuing to position repossession as a last resort after all other options have been explored.
HISTORIC LOWS
James Tatch, Head of Analytics at UK Finance, says: “The number of mortgages in arrears continued to fall in Q4, with BTL arrears down 25% compared to the end of 2024, and homeowner arrears down 13%. We have also seen a decline in possessions in Q4 due to lenders’ commitment to keep people in their homes over the Christmas period.
“As ever, the number of possessions remain low by historic standards and are broadly in line with pre-pandemic levels.
POSITIVE IMPACT
Mary-Lou Press, President of NAEA Propertymark (National Association of Estate Agents), adds: “We are starting to witness the positive impact of proactive lender engagement and the resilience shown by many borrowers despite ongoing cost-of-living pressures and higher interest rate environments over recent years.
“The fact that arrears levels are a fraction of those seen during the 2009 financial crisis offers important reassurance about the overall stability of the housing market.
“The decline in buy-to-let arrears is particularly notable. A stable and financially secure landlord base is essential to sustaining supply in the private rented sector at a time when demand remains extremely high. Continued lender flexibility and early engagement will be key to ensuring landlords can manage financial pressures while maintaining much-needed rental homes.
FINANCIAL PRESSURES
But she adds: “However, while the overall numbers are encouraging, over 80,000 homeowner mortgages remain in arrears and possessions, and although low, they represent that many households continue to experience significant financial pressures.
“It is vital that borrowers continue to seek support early and that lenders maintain a pragmatic, tailored approach to repayment solutions.”
POSITIVE MOMENTUM
David Miller, divisional director at Spicerhaart Corporate Sales, says: “The positive momentum continues on arrears with yet another drop in both residential and BTL cases.
“Given the expected path of both mortgage rates and the bank rate, it’s hoped that this will continue to be the pattern. It’s certainly helped by the proactive work of lenders to intervene early with support.
“High LTV product choice at an 18-year high may still alarm some with long memories, but we’re in a strong position with economic conditions improving and lenders more than ready to provide proactive support.”
LEASHOLD CHALLENGES
And he adds: “On the ground, we are seeing increasing challenges around leasehold apartments, with the number coming into possession rising over the last 12 months and now accounting for nearly 50% of the properties we are managing.
“Severe service charges and doubling ground rent are the tip of the iceberg.”
“Severe service charges and doubling ground rent are the tip of the iceberg of issues for lenders, which lead to repossession and then significantly reduce demand or interest from buyers or BTL investors.
“That’s on top of increasing difficulty dealing with management companies, causing delays and additional expense.
“If we are serious about keeping possessions low and as a last resort for lenders, we need to tackle to leasehold reform head on.
“As we’ve seen, leasehold is a growing driver behind these decisions and an area where reform is desperately needed for all parties. It’s another reason why lenders need trusted partners with real expertise in asset management – particularly in this complex area of the market.”
