UK Mortgage Arrears Hit Two-Year Low as Market Shows Signs of Stabilisation

Arrears decline for third consecutive quarter while households maintain payment discipline heading into holidays

London, 9 February 2026 – Pepper Advantage, a global credit management and technology company, today released the latest data from its portfolio of over 100,000 UK residential mortgages. The Q4 2025 report shows that the overall arrears rate fell by 1.1% quarter-on-quarter, marking the third consecutive quarterly decline and the lowest arrears rate since Q4 2023*.

Key Findings

• Total UK arrears decline: the UK arrears rate fell 1.1% in Q4 2025 to hit the lowest level since Q4 2023.
• Residential and Buy-to-Let Performance: The residential arrears rate declined by 0.9% in Q4, continuing a gradual improvement. Buy-to-let arrears fell by 10.4%, reflecting a large portfolio migration during the quarter alongside signs of broader stabilisation.
• Regional and Demographic Divergence: Arrears rates declined in all UK regions except London (+0.6%) and the South West (+2.1%). Younger borrowers aged 21-40 saw increased arrears growth from a low base, while arrears among those aged 41 and above eased.
• Direct Debit Rejections Remain Steady**: The total DDR rate rose a mere 0.7% in Q4, indicating households were budget-focused over the holiday period.
• New Originations Rebound***: New originations grew by 1.9% in Q4 2025, following a strong Q3 rebound, to reach their highest level since Q4 2022. The new origination pipeline looks healthy heading into 2026.

“Our Q4 results show clear, cautious progress. Arrears have fallen for a third straight quarter and new lending has returned to levels not seen since 2022 – the strongest signal yet that conditions in the UK mortgage market are beginning to stabilise,” said Aaron Milburn, UK Managing Director at Pepper Advantage. “While our data points to a more resilient mortgage market moving into 2026, we share the caution shown by UK households. The outlook remains uncertain as changes in inflation, interest rates, or macro-economic shocks could quickly alter current trends.”

For additional insights and detailed statistics, please refer to the complete report on Pepper Advantage's website.

*Mortgages in arrears are defined as those that are 30+ days delinquent in payment.

**A direct debit rejection is a form of missed mortgage payment that typically occurs due to insufficient funds when a direct debit is called and is an early indicator of borrower stress.

***Pepper Advantage manages organic origination for 10 UK originators, 80% of which are capital markets funded.