Mortgage arrears in the UK declined for a second consecutive quarter, according to data from Pepper Advantage, although an uptick in missed payments suggests borrowers may still be under pressure.
The credit management and technology firm reported that arrears across its portfolio of more than 100,000 UK residential mortgages fell by 0.3% in Q3 2025, following a 4.4% decline in Q2.
The latest figures also showed a rebound in mortgage activity, with new originations rising 20.2% compared to the previous quarter.
Residential arrears improved by 0.2%, although the rate of decline slowed compared with the 4.7% fall seen in Q2.
Meanwhile, arrears in the buy-to-let (BTL) sector edged up 0.1%, but missed payments fell sharply, with direct debit rejections down 7.9%.
Pepper Advantage said this suggests the instability previously seen in the BTL market may have passed its peak, as some landlords struggling with higher rates have now exited the market.
However, total direct debit rejections across the UK rose by 4.2% in Q3, reversing a 5.1% fall in the previous quarter.
The increase may indicate renewed strain on household finances, as inflationary pressures persist – with CPIH up 4.1% in August 2025.
Aaron Milburn, UK managing director at Pepper Advantage, said: “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.
“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.”
