Mortgage arrears across both homeowner and buy-to-let sectors declined in the first quarter of 2025, according to new figures from UK Finance, though possession levels rose slightly and concerns about the impact of a weakening labour market are beginning to surface.
In its quarterly update, UK Finance reported that the number of homeowner mortgages in arrears fell by 2% compared with the final quarter of 2024, with a total of 90,140 cases. Arrears among buy-to-let borrowers dropped by an even sharper 6%, to 11,830. As a proportion of total loans, arrears remain low at 1.03% for homeowners and 0.61% for buy-to-let.
The data also suggests a broader stabilisation, with early-stage arrears falling during the quarter — an indicator that any future increase in overall arrears is likely to be limited in the short term.
Possession activity, however, did increase. A total of 2,030 mortgaged properties, including both owner-occupied and buy-to-let, were repossessed in Q1 2025. While this marks a rise, the figure remains 85% lower than the 13,200 repossessions seen in Q1 2009, at the height of the global financial crisis. UK Finance noted that the majority of current possessions relate to mortgages taken out over a decade ago, and that lenders remain committed to avoiding repossession unless all other options have been exhausted.
Charles Roe, director of mortgages at UK Finance, said the fall in arrears reflected improving conditions for some borrowers. “The number of mortgages in arrears fell slightly compared to the previous quarter and the arrears numbers appear to now be on a downward trend. The recent cuts in interest rates and mortgage rates will also help households with their monthly bills. This is a positive development, but we recognise that some households may still be struggling. Lenders are committed to supporting anyone facing financial difficulties and offer a range of tailored solutions.”
Nonetheless, some industry figures are sounding a note of caution. Melanie Spencer, sales and growth lead at Target Group, warned that current arrears figures may not yet reflect wider economic headwinds. She pointed to weakening labour market data and the impact of Chancellor Rachel Reeves’ £20bn tax package, which has increased employer national insurance contributions and minimum wages, alongside incoming reforms in the Employment Rights Bill.
“Arrears may look good now but employment levels deteriorated in March,” said Spencer. “Weakening labour market activity will inevitably feed into an increase in greater arrears in the future. That’s coming at banks and building societies fast – and when it arrives, unprepared lenders will feel like they’ve been hit by an express train.”
She stressed the importance of early intervention and investment in systems to manage borrowers in difficulty, adding that proactive engagement would be critical in avoiding further increases in possession levels.
Richard Pike, chief of sales and marketing at Phoebus Software, echoed the cautious optimism but underlined ongoing affordability pressures. “It’s encouraging to see a fall in mortgage arrears across both homeowner and buy-to-let sectors this quarter, especially against the backdrop of ongoing cost-of-living pressures and a still-elevated interest rate environment,” he said. Pike noted that stronger-than-expected GDP growth of 0.7% in the first quarter points to resilience in the UK economy, but added that “the path ahead is still uncertain, especially with no immediate prospect of additional rate cuts.”
He called on lenders to maintain a focus on early engagement and the use of data to identify at-risk borrowers, warning that continued support will be essential to keeping repossessions low.
UK Finance reiterated that contacting a lender for support will not impact a customer’s credit score, and encouraged anyone concerned about their mortgage payments to seek help early.
