Mortgage arrears across the UK fell in the third quarter of 2025, even as the number of homes being repossessed edged higher, according to the latest figures from UK Finance.
The trade body reported that 84,100 homeowner mortgages were in arrears of 2.5% or more of the outstanding balance in the three months to September – 4% fewer than in the previous quarter. The figure represents 0.97% of all homeowner mortgages outstanding.
Within that total, 28,940 were in the lightest arrears band – where borrowers are between 2.5 and 5% behind on repayments – down 3% on the previous quarter.
Arrears among buy-to-let borrowers also declined. There were 10,420 buy-to-let mortgages in arrears of 2.5% or more, down 8% on the previous quarter and accounting for 0.54% of all buy-to-let loans. Of these, 3,750 were in the lightest arrears category, down 9%.
HIGHER BORROWING COSTS
UK Finance said the fall in arrears suggested most borrowers were continuing to manage higher borrowing costs despite the prolonged impact of the Bank of England’s rate rises. The base rate stood at 5% for most of the quarter, its highest sustained level since 2008.
However, the data also pointed to a small increase in the number of homes being repossessed. 1,390 homeowner mortgaged properties were taken into possession in the third quarter, up 4% on the previous three months, though UK Finance stressed that this remained well below the long-term average.
The number of buy-to-let repossessions rose more sharply, with 900 properties taken into possession – a 14% quarterly increase.
GRADUAL ADJUSTMENT
Industry analysts said the figures indicated a housing market adjusting gradually to higher interest rates rather than facing a sharp deterioration in repayment capacity.
The decline in arrears provides further evidence that the mortgage market is stabilising after a period of volatility, though lenders remain cautious ahead of the Chancellor’s autumn Budget later this month, which is expected to address pressures facing both homeowners and landlords.
WORRYING NEWS
Richard Pike, Phoebus Software’s chief sales and marketing officer, said: “While the cost‐of‐living pressure persists, the fact that arrears have fallen for a second quarter suggests the bulk of borrowers are managing.
“However, the 4% increase in repossessions is worrying news, particularly on the back of the unemployment data this week, which shows the jobless figure has reached 5%.
“While the fall in arrears is welcome, lenders can’t afford to be complacent. Many borrowers took longer deals when rates were much lower and so there remains a risk of payment shock when their deals end over the coming months.
“Lenders should remain vigilant.”
“Lenders should remain vigilant, particularly as criteria relax and risk appetite rises, and ensure their systems are flagging any potential issues so the correct interventions can be made.”
FRAGILE OUTLOOK
And he added: “With the outlook for household finances remaining fragile, and the spectre of higher taxes looming, now is the moment for lenders to lean into intelligent, scalable arrears solutions.
“A more automated seamless servicing infrastructure will be essential to uphold performance and support vulnerable customers.”
REPOSSESSION NOT THE FIRST PORT OF CALL
David Miller, divisional director at Spicerhaart Corporate Sales, said: “Against the current backdrop, we should be really encouraged to see yet another fall in arrears cases across both residential and buy-to-let.
“Lenders continue to dispel this myth that repossession is the first port of call. Instead, they put the work in to identify arrears cases early and provide personalised support.
“Lenders will need to keep that laser focus on arrears.”
“There’s no question though that lenders will need to keep that laser focus on arrears and good forbearance moving forward, particularly as unemployment jumps to its highest level since 2020.”
“While the data does show an increase in possessions, which is most likely involves those in the highest arrears band, we must note that it is still well below the long-term average.
“Lenders continue to stay close and implement proactive exit strategies – such as assisted voluntary sale – to ensure all parties receive a positive outcome. This will continue to play a significant role.”
