Mortgage arrears growth stalls for first time since 2022

New research by Pepper Advantage has found that in Q1, the data reveals that the overall arrears growth rate across residential and buy-to-let (BTL) mortgages was at 0.0%, primarily driven by improvement in the buy-to-let market.

The data, which consolidates and analyses data from across the UK, shows that BTL arrears growth fell for the first time since 2021, decreasing by 0.1% after a prolonged period of stress. However, the rate of residential arrears growth increased for the second consecutive quarter, growing by 0.3%.

The drop in the arrears rate buy to let in Q1 2025 followed 12 consecutive quarters of arrears rate growth. Despite improvement in the first quarter, the overall rate of BTL arrears is 23.4% higher than in Q1 2024, reflecting the impact of high rates and margin pressure on UK landlords.

The percentage of residential mortgages in arrears increased by 0.3% in Q1 2025, following 2.4% growth in Q4 2024. However, the year-on-year growth rate for the percentage of residential mortgages in arrears is relatively low at 1.2%.

New originations rose 4.7% in Q1 2025 compared to Q4 2024, driven by a steep increase in March ahead of the Stamp Duty rise.

Southern regions (Greater London, the South East and South West), as well as the East Midlands and Yorkshire, posted arrears rate growth. In contrast, Scotland, the North East, North West, Wales, and West Midlands all recorded a drop in their arrears rates.

Fraser Gemmell, CEO of Pepper Advantage, said “Zero arrears rate growth for the first time since the cost-of-living crisis began is welcome news, especially with the improvement in the BTL market. However, if we look closely at the data, there are still areas of concern – particularly several consecutive quarters of arrears rate growth across London and the South East, where housing costs are highest.

“Looking ahead, clouds appear to be gathering over the global economy. The risks of economic fallout from the trade war could prompt the Bank of England to follow the ECB and cut rates, potentially providing some relief. The prospect of higher inflation fuelled by disrupted supply chains, however, could unleash cost pressures that once again put financial strain on borrowers. We should not underestimate the potential impact of a challenging macroeconomic outlook and must remain prepared for whatever lies ahead.”