New data shows first pause in growth since cost-of-living crisis began
Mortgage arrears across the UK held steady in the first quarter of 2025, with improved performance in the buy-to-let (BTL) segment offsetting continued strain in residential loans, according to new data from Pepper Advantage.
The credit intelligence firm, which monitors more than 100,000 UK home loans, said there was no change in the overall arrears growth rate for residential and BTL mortgages combined in Q1. This marks the first time since the cost-of-living crisis began that arrears growth has not increased.
BTL mortgage arrears fell 0.1% during the quarter, reversing a trend that began in 2021 and followed 12 straight quarters of rising arrears. While this is a positive shift, BTL arrears remain 23.4% higher than a year earlier, which the report attributes to ongoing pressure from elevated interest rates and shrinking margins for landlords.
In contrast, residential mortgage arrears – those with payments overdue by more than 30 days – continued to climb, rising 0.3% in Q1 following a 2.4% increase in the previous quarter. However, the annual growth in arrears for this segment stands at just 1.2%.
The Pepper Advantage report also highlights a growing divide between northern and southern regions. Arrears growth was recorded in Greater London, the South East, South West, East Midlands and Yorkshire. Meanwhile, Scotland, Wales, the West Midlands, North East, and North West saw arrears rates decline.
New mortgage originations rose 4.7% quarter-on-quarter, with activity boosted in March as borrowers sought to complete transactions ahead of an anticipated increase in Stamp Duty.
“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,” said Fraser Gemmell (pictured), chief executive of Pepper Advantage. “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.”
Pepper Advantage classifies mortgages in arrears as those with payments overdue by more than 30 days.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
