Mortgage defaults fall for first time since 2022 as positivity returns
Mortgage arrears in the UK have declined for the first time in three years, in a sign that the financial strain on homeowners is beginning to ease and the market is slowly regaining stability.
According to the Bank of England’s latest quarterly survey, lenders reported a fall in default rates on household secured loans in the third quarter, the first drop since the end of 2022. The findings suggest that the intense “drag” from high borrowing costs is starting to subside, following a long stretch of rising rates and mortgage distress.
Craig Head, of Mortgage Required, said the figures show that “the worst of the pressure on borrowers is now reducing,” noting that as mortgage rates fall, borrowers “are better able to service mortgage debt” and that “stress among high-risk borrowers is subsiding.” He added that with interest rates no longer rising, “many borrowers locked in higher rates in recent years and are now rolling off into more affordable deals.”
Borrowers regain stability and confidence
This stabilisation is feeding through into borrower sentiment. Head said that “lots of clients who delayed moving or remortgaging now feel much more confident and positive in transacting.” The improving default picture also appears to be influencing lenders’ attitudes: “lower default rates reduce the risk for lenders who feel much more confident in expanding their criteria and their lending multiples,” he said.
Katrina Horstead, of Versed Financial, described the decline as “encouraging,” suggesting it likely reflects “a combination of stabilising interest rates, stronger wage growth, and borrowers adapting to higher repayment levels after the sharp rate rises of the past two years.” She added that advisers are now “starting to see signs of renewed borrower confidence, with more clients exploring their options rather than holding back.”
Horstead expects the trend could support modest growth in the coming months if rates remain steady, particularly in the remortgage and home mover sectors. However, she warned that “potential changes in the upcoming Autumn Budget could influence both affordability and sentiment, so the current improvement should be viewed with cautious optimism.”
Lenders show greater flexibility amid market adjustment
Market professionals also point to a subtle but significant shift in lender behaviour. Sadia Mehmood, of The Mortgage Mum, said the improvement is “definitely due to stabilising interest rates,” adding that after a period of uncertainty, “borrowers seem to be regaining trust in the market as it stabilises.” She noted that lenders “are adopting a more pragmatic approach when dealing with borrowers in difficulty,” increasingly open to “offering term extensions, switching products and making the mortgage interest only.”
With interest rates expected to hold steady at 4% for the rest of the year, the mood across the sector is cautiously upbeat. Falling defaults and steadier rates are improving borrower resilience and hinting that the mortgage market may finally be entering a calmer phase.
