Mortgage arrears in both the homeowner and buy-to-let sectors declined in the first quarter of 2025, according to the latest figures from UK Finance.
The data signals a modest improvement in borrower resilience, although repossession activity has risen slightly and concerns are emerging over the potential impact of a softening labour market.
In its quarterly arrears and possessions update, UK Finance reported a 2% fall in the number of homeowner mortgages in arrears compared with the previous quarter, bringing the total to 90,140. Arrears among buy-to-let borrowers declined by 6% over the same period, to 11,830 cases.
As a proportion of outstanding loans, arrears remain historically low, at 1.03% for homeowner mortgages and 0.61% in the buy-to-let sector. Early-stage arrears also declined during the quarter, indicating that, in the near term, the risk of a significant rise in distress levels across the mortgage market is limited.
POSSESSION LEVELS INCREASED
Despite the improvement in arrears figures, possession levels increased. A total of 2,030 mortgaged properties – spanning both owner-occupied and buy-to-let – were repossessed in Q1 2025. While this represents a quarterly rise, the figure remains 85% below the 13,200 repossessions recorded in Q1 2009 during the peak of the global financial crisis.
UK Finance says that the majority of current possessions relate to legacy loans originated more than a decade ago. Lenders are continuing to apply forbearance measures where possible, in line with regulatory expectations and industry commitments to treat customers fairly.
The improvement in arrears levels follows a period of relative stability in interest rates, with recent cuts contributing to marginally lower mortgage costs. However, affordability pressures persist for some households, and market observers remain alert to the potential impact of weakening employment conditions on borrower performance in the months ahead.
HISTORIC LOWS
David Miller, divisional director at Spicerhaart Corporate Sales, says: “It is really positive to see mortgage arrears continue to fall across both residential and buy-to-let.
“While possessions do creep up – likely pointing to greater difficulties in higher arrears band – they still remain at historic lows and demonstrate the good work of lenders.
“In recent weeks and months, we’ve certainly seen positive changes with rate reductions across the market and the recent cut to the base rate, which is likely not to be the last. This will certainly help with the overall arrears picture moving forward – although we cannot underestimate the prospect of sticky inflation and potential pressures around the labour market.
“Of course, positive rate news is likely to offer little comfort for those deep in arrears who often face greater difficulty in refinancing and find themselves in a more vulnerable position.
“This is where early intervention from lenders remains absolutely critical, particularly through the likes of assisted sales schemes to ensure a positive outcome for all parties.”
COST OF LIVING AFTERSHOCK
Toby Leek, NAEA Propertymark President, adds: “It’s extremely positive to see to see mortgage arrears drop to their lowest level since 2009.
“There has been much progress within the sector to help ensure the overall lending criteria is more robust and offers consumers a higher degree of safety regarding their affordability.
“However, it is concerning to see repossessions witness an increase within the first quarter of 2025, as it demonstrates there is still an aftershock regarding the recent surge in the cost of living and support available to those who may need genuine help in the short to medium term.”
