Mortgage arrears in UK fall to lowest level since 2023

Shoppers and homeowners alike are breathing a little easier as new data shows mortgage arrears fell again in Q4 2025, driven by steadier lending and households watching their budgets , a welcome sign for anyone tracking UK mortgage market stability heading into 2026.

Essential Takeaways

• Arrears down: Mortgage arrears dropped 1.1% in Q4, the third straight quarterly fall and the lowest rate since Q4 2023.

• Buy-to-let rebound: Buy-to-let arrears plunged by 10.4%, helped by portfolio migration and stabilisation.

• Regional split: Most UK regions saw improvements; London and the South West bucked the trend with small rises.

• Younger borrowers hit: Borrowers aged 21–40 experienced higher arrears growth from a low base, while over-41s improved.

• New lending picking up: New originations rose 1.9% in Q4, reaching the highest level since Q4 2022 and signalling a healthier pipeline.

Why the Q4 drop matters , and how it feels for homeowners

The clearest fact up front: arrears easing for a third quarter is a psychological and practical boost for the market, and it shows up in everyday life as calmer calls from lenders and fewer emergency remortgage moves. According to Pepper Advantage, this steady decline points to a mortgage market that’s beginning to stabilise after a bumpy few years. For borrowers that often means a quieter inbox and slightly more predictable budgeting.

Behind the numbers is a simple behavioural shift: households concentrated on paying the bills and kept a tighter eye on spending over the holiday season. You can see that in the small uptick in direct debit rejections , a mere 0.7% rise , which suggests careful money management rather than a sudden wave of distress.

Buy-to-let’s sharp fall , migration and market mechanics

Buy-to-let arrears falling by double digits is striking, and it’s not just a sign of landlords suddenly getting wealthier. Pepper Advantage highlights that a large portfolio migration during Q4 played a major role, while other indicators point to broader stabilisation in that market slice. Landlords and letting agents will feel the difference in cashflow predictability and fewer repossession headaches.

If you’re a landlord, this is a moment to review tenancy strategies and consider whether refinancing or re-structuring portfolios makes sense before rates shift again. Smaller landlords should still plan for variability: the underlying economic drivers haven’t disappeared.

Regional and age splits , why London and the young stand out

The regional divergence matters because it reminds us the housing market isn’t uniform. London and the South West recorded rises in arrears, up 0.6% and 2.1% respectively, while other regions improved. That reflects local income pressures, housing costs and job market quirks, so renters and owners in different areas will experience different realities.

On age, younger borrowers (21–40) saw arrears rise from a lower base, which is a warning sign. Many in that cohort hold smaller deposits, larger relative mortgages and face cost-of-living pressures. If you’re in that age group, focus on building a buffer, talk to your lender early if things get tight, and check whether switching to a fixed deal could offer short-term certainty.

New lending is climbing , what that means for rates and choices

New originations rose 1.9% in Q4, the best level since late 2022, which shows lenders are starting to loosen up again and buyers are returning. That’s the sort of trend that can help stabilise prices and give movers more product choice. According to Pepper Advantage, the new origination pipeline looks healthy heading into 2026, but they and borrowers are rightly cautious: changes in inflation or interest rates could upend the picture quickly.

If you’re house-hunting, don’t assume rates will stay put; get an agreement in principle sooner rather than later and compare fixed versus tracker offerings. For many, a short-term fixed rate gives breathing room while the market finds firmer ground.

Practical tips for borrowers and landlords navigating the calmer but cautious market

First, if you’re worried about payments, proactive contact with your lender usually buys you options , payment plans, product switches or short-term relief. Second, build or bolster an emergency fund; even a few months’ cover can prevent arrears spiralling. Landlords should audit tenant affordability and consider rent collection safeguards or insurance for voids.

Finally, keep an eye on regional data. Local labour markets and house-price trends influence arrears more than national averages suggest, so a local view helps with practical decisions like when to remortgage or rebalance a portfolio.

It’s a small change that can make every mortgage choice that bit more secure.

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