The UK labour market showed further signs of weakening this morning as unemployment rose to its highest level in more than a decade, prompting warnings that mortgage lenders cannot afford to become complacent around collections and arrears management.
Latest Office for National Statistics figures showed the unemployment rate climbed to 5% in the three months to March, up from 4.9% previously and the highest level since 2015.
The data also revealed a continued slowdown in hiring activity, with job vacancies falling by 28,000 between February and April to 705,000 – the lowest level recorded in five years.
More recent payroll figures painted an even weaker picture, with the number of payrolled employees dropping by 100,000 in April, marking the sharpest monthly decline outside of the pandemic since records began in 2014.
SOFTENING WAGE GROWTH
At the same time, wage growth continued to soften, with regular pay increasing by 3.4% annually and real pay growth slipping to just 0.3%.
The figures are likely to increase concerns across the mortgage sector around borrower affordability, arrears management and future possession levels should labour market conditions continue to deteriorate.
Industry data already points to rising borrower stress, with 1,250 homeowner mortgaged properties taken into possession during the first quarter of 2026.
WARNING SIGN
Melanie Spencer (main picture), growth director at Target Group, part of Tech Mahindra, said the latest employment data should act as a warning sign for lenders despite some recent resilience across the wider economy.
She said: “I think this data highlights why lenders can’t get complacent about collections and arrears.
“Yes, there’s been some surprising positive news around recently. The latest PMI showed business activity rising in April.
“Retail sales rose in March, even when excluding the increased cost of fuel. Living standards are improving at the fastest pace since 2022.”
FRAGILE OUTLOOK
However, Spencer warned that the economic outlook remained fragile as the impact of the Middle East conflict continued feeding through into the labour market.
She added: “Unemployment rose to 5% in the three months to March with figures showing the first effects of the Middle East war on the jobs market. Demand for workers is set to weaken the longer the conflict goes on.
“Lenders need to get on the front foot to ensure their servicing operations have the right people, processes, and platforms in place to handle the increased demand.
“A strong customer experience is also critical – proactive communication and early engagement with borrowers can encourage customers to seek support sooner, helping to reduce arrears and improve long-term outcomes for both lenders and borrowers.”
