UK Mortgage Arrears Decline for Second Quarter Amid Market Shifts

UK mortgage arrears decreased slightly by 0.3% in the third quarter of 2025 across Pepper Advantage's portfolio of over 100,000 residential mortgages, marking the second consecutive quarterly decline after a 4.4% drop in Q2. Residential mortgage arrears fell by 0.2%, though this was a slower improvement compared to the previous quarter's 4.7% decline, while buy-to-let arrears rose marginally by 0.1%. Direct debit rejections, a key indicator of missed payments, fell by 7.9% in the buy-to-let segment but rose by 4.2% overall in the UK, suggesting ongoing financial strain amid persistent inflation, which reached 4.1% in August 2025. New mortgage originations rebounded strongly, increasing by 20.2% compared to Q2, following subdued demand after the Stamp Duty holiday ended in March. Pepper Advantage's UK managing director Aaron Milburn cautioned that despite arrears improvements, rising missed payments indicate that many borrowers remain financially vulnerable, especially with inflation impacting household budgets as the holiday season approaches. The buy-to-let market instability may be easing as some landlords have exited due to higher interest rates, but overall economic pressures suggest continued caution is necessary.