The number of UK mortgage holders in arrears fell in the second quarter of 2025, despite a small uptick in repossessions, according to figures from UK Finance.
A total of 87,380 homeowner mortgages were in arrears of 2.5% or more of the outstanding balance between April and June, down 3% from the first quarter.
Of these, 29,840 cases were in the lightest arrears band – between 2.5% and 5% of the balance – also down 3% on the previous three months.
Arrears among buy-to-let (BTL) borrowers showed a sharper improvement, falling 5% to 11,270 cases. Within this, 4,100 BTL loans were in the lightest arrears band, down 6% on Q1.
BELOW HISTORIC AVERAGES
The overall proportion of mortgages in arrears remains low, at 1.00% of homeowner loans and 0.58% of BTL loans.
While possessions increased, they remain well below historic averages. In Q2, 1,340 homeowner mortgaged properties were taken into possession, up 10% on the previous quarter.
By contrast, repossessions of BTL properties fell by 2% to 790 cases.
UK Finance said lenders continue to offer tailored support for customers facing financial difficulties, urging borrowers to contact their lender early if they are worried about making repayments.
Possession is regarded as a last resort after other options have been explored, and in some cases enables long-term struggling borrowers to exit their mortgage while retaining as much equity as possible.
Charles Roe, Director of Mortgages at UK Finance, says: “Arrears are continuing to fall across both homeowner and buy-to-let mortgages, reflecting resilience in the market.
“The proportion of mortgages in arrears also remains below long-term averages, even amid the current economic uncertainty.”
INDUSTRY REACTION
Industry analysts said the figures suggest lender forbearance and falling interest rates are helping to ease pressure on some borrowers, though the rise in possessions among homeowners signals continued strain for a minority.
David Miller, divisional director at Spicerhaart Corporate Sales, says: “Another fall in mortgage arrears across both residential and BTL adds further merit to the view that the intense financial pressures felt by households and landlords in recent years are beginning to ease.
“It’s also a testament to the positive work of lenders to catch arrears cases early and provide suitable support.
“While further movement on the base rate and the continued stabilising of mortgage rates certainly helps, the future path of arrears is still far from a given.
“This is particularly true as the labour market continues to cool and inflation remains sticky and susceptible to potential tax changes and economic uncertainty in the near future.”
PROACTIVE APPROACH
And he adds: “Lenders remain focused on staying close to clients and on top of their mortgage book, adopting a proactive approach to determining value and potential risk to provide the best opportunity for a good outcome for all parties.
“While lenders are committed to keeping repossession as that very last resort, another marginal increase in possessions likely points to sustained pressure in those higher arrears bands – although across all arrears bands we have seen numbers drop.
“The fact that repossessions still remain at historic lows demonstrates that exit strategies at this level are still possible and lenders are engaging with borrowers and deploying them where they can.”
CONCERNING DEVELOPMENT
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, says: “UK Finance figures show that homeowner mortgage repossessions are up 47% year-on-year, which is concerning, and according to the Bank of England, the rate charged on outstanding mortgages rose to 3.88% in June, up from 2.93% in June 2024 and 2.17% in June 2020.
“There will be many borrowers coming off cheap fixed rate deals that revert onto a much higher variable rate, but not everyone might be able to afford to remortgage.
“Borrowers will fall into arrears if they cannot keep up with their mortgage repayments, and eventually, could lose their home.
“The incentive to refinance is critical, as there is a difference of more than 2% to escape a revert rate, compared to just 1% back in August 2023, based on the average two-year fixed rate versus the Moneyfacts average Standard Variable Rate (SVR).
MORE AFFORDABLE PRODUCTS
Mary-Lou Press, NAEA Propertymark President, says: “This should provide some relief to the many people who have been struggling with the cost of living over the last few years and shows that introducing more affordable mortgage products has helped ease the pressures that many people have faced with paying for their mortgage.
“Should interest rates continue to drop, then this will hopefully result in more affordable mortgage products reaching the marketplace.
“As overall affordability increases, we should see a positive effect of repossessions decreasing further in the future.”
MIXED PICTURE
Richard Pike, Phoebus Software’s Head of Sales and Marketing, says: “The latest UK Finance figures present a mixed picture, with a welcome decline in mortgage arrears offset by a rise in possessions.
“This suggests that while fewer borrowers are falling behind on repayments, lenders are taking possession more frequently which would indicate a more tight grip on risk when it comes to potential recoveries.
“As eligibility criteria for new lending continues to loosen and the risk curve increases in many lenders, this shouldn’t lead to complacency.”
