Mortgage arrears increase as borrowing costs rise unexpectedly

4th February 2025

Q4 mortgage data from Pepper Money has revealed that residential arrears increased as borrowing costs rise unexpectedly.

The data found that the rate of arrears for residential mortgages grew by 2.4% on Q3, following two consecutive quarters of decline.

The arrears rate for fixed rate mortgages grew 8.4%, marking the highest growth rate since Q1 2024, when it hit 10.1%. The percentage of variable rate mortgages in arrears grew 2.3% — also the highest growth rate in this group since Q1, when it was 3.9%.

Whilst the Buy-to-Let (BTL) market arrears growth slowed from 9.7% to 1.5%.  While growth is slowing, overall BTL arrears are up 38.1% since Q4 2023.

Regionally, the overall rate of arrears increased across the UK except for the East Midlands, North East and Scotland, where it declined quarter-on-quarter by 1.8%, 2.4% and 3.2%, respectively. All other regions saw their arrears rates grow by between 0.7% and 5.7%.

Fraser Gemmell, CEO of Pepper Advantage, said “The three-month run-up to the holidays is often a challenging time for household finances as families balance higher spending with bills and mortgage repayments. For borrowers, these strains were accentuated in Q4 by unexpectedly higher borrowing costs, particularly as many cheaper fixed-term mortgages came to an end. These pressures have translated into a higher rate of arrears growth across the board.

“While arrears growth in some regions is abating, the overall level remains remarkably high across the borrower types, age, and product areas. Increasing house sales have captured headlines in recent weeks as buyers race to beat the stamp duty deadline, but this is not the whole picture. Inflationary pressures remain a key concern for many households and will likely persist for the foreseeable future. Supporting these households remains crucial.”