Drop in arrears rate offset by uptick in missed payments
The proportion of UK residential mortgages in arrears has declined for a second consecutive quarter, according to new figures from Pepper Advantage.
The credit management firm reported a 0.3% reduction in arrears across its portfolio of more than 100,000 UK mortgages in the third quarter of 2025, following a 4.4% decrease in the previous quarter.
The latest data also showed a 20.2% increase in new mortgage originations compared to the second quarter, marking a rebound after a period of subdued demand following the end of the Stamp Duty holiday in March.
Within Pepper Advantage’s portfolio, the arrears rate for residential mortgages dropped by 0.2% in the third quarter. However, this improvement was less pronounced than the 4.7% fall recorded in the second quarter.
The buy-to-let segment saw a marginal increase in arrears of 0.1%, while direct debit rejections—a key indicator of missed payments—fell by 7.9% in this category. Pepper Advantage noted that recent volatility in the buy-to-let market may be easing, as some landlords have exited the sector in response to higher interest rates.
Despite the overall decline in arrears, total direct debit rejections across the UK rose by 4.2% in the third quarter, reversing a 5.1% decline in the previous period. This rise in missed payments comes as inflationary pressures persist, with the consumer prices index including owner occupiers’ housing costs (CPIH) increasing by 4.1% in August.
Although mortgage arrears have fallen, many borrowers continue to struggle with repayments, with brokers attributing missed payments mainly to high debt levels, unexpected life events, and insufficient financial buffers.
“While we have witnessed a decrease in the arrears rate for the second quarter, the contextual factors suggest that the situation remains precarious for many borrowers,” said Aaron Milburn, UK managing director at Pepper Advantage. “Our data, particularly the rise in direct debit rejections, indicates that the overall improvement in arrears, while encouraging, may not reflect a sustained positive trend.
“We remain watchful as inflation continues to impact household budgets, particularly with rising food and drink costs, as we head into the holiday season.”
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.
