UK mortgage arrears fell in the second quarter of 2025, according to the latest figures from Pepper Advantage.
This was the first drop since the start of the cost-of-living crisis.
The arrears rate was down by 4.4%, with direct debit rejections falling 5.1%.
Both measures had not improved at the same time since the pandemic.
The data also found that residential arrears fell by 4.7%.
This followed a drop in consumer price inflation and came after earlier interest rate cuts.
Buy-to-let (BTL) arrears increased by 0.9% after a small fall in the previous quarter.
However, this was a much slower rise than in the first half of 2024, when rates grew by more than 10% in each of the first two quarters.
BTL arrears were still up 9.5% compared to a year ago.
Arrears fell in all 11 UK regions for the first time since Q2 2021.
The North West saw the biggest improvement at -7.9%, followed by Wales at -7.7%, and the East Midlands at -7.0%.
London and the South East saw the smallest drops at -0.9% and -3.1% respectively.
Direct debit rejections posted the largest fall since Q1 2021 and new originations were down 3.2%.
Originations peaked in March, then fell sharply in April before recovering in May and June.
Aaron Milburn, managing director, UK, Pepper Advantage, said: “The significant drop in residential mortgage arrears, alongside the simultaneous decline across all UK regions, is a promising sign that some household financial pressures may be easing after years of inflation and rising living costs.
“This marks the most positive quarterly movement we have observed since this report began.
“It is important to remember that any recovery remains fragile.”
Milburn added: “Unexpected economic shocks or hits to household budgets could quickly reverse this improvement.
“We remain watchful as we enter the second half of the year and are ready to support borrowers in whatever ways they need.”
