The number of mortgages in arrears fell by 2% in Q1 2025 compared to the final quarter of last year, new UK Finance figures have shown.

A total of 90,140 homeowner mortgages were in arrears of 2.5% or more of the outstanding balance in the first three months of 2025.

UK Finance’s data revealed that within the total, there were 30,700 homeowner mortgages in the lightest arrears band – covering those between 2.5% and 5% of the outstanding balance. This represented a 3% drop from Q4 2024.

In the buy-to-let (BTL) market, the banking trade body reported 11,830 BTL mortgages in arrears of 2.5% or more of the outstanding balance in Q1, a 6% quarterly drop.

Overall, mortgages in arrears accounted for 1.03% of all homeowner mortgages outstanding in Q1, and 0.61% of all BTL mortgages.

“In recent weeks and months, we’ve certainly seen positive changes with rate reductions across the market and the recent cut to the base rate, which is likely not to be the last,” commented divisional director at Spicerhaart Corporate Sales, David Miller.

“This will certainly help with the overall arrears picture moving forward – although we cannot underestimate the prospect of sticky inflation and potential pressures around the labour market.

“Of course, positive rate news is likely to offer little comfort for those deep in arrears who often face greater difficulty in refinancing and find themselves in a more vulnerable position. This is where early intervention from lenders remains absolutely critical, particularly through the likes of assisted sales schemes to ensure a positive outcome for all parties.”

UK Finance also published figures about possessions, which revealed that 1,220 homeowner mortgaged properties were taken into possession in Q1, an 18% increase on the previous quarter.

However, the banking body did state that these numbers were “significantly less” than the long-term average.

Despite an improved picture for both arrears and possessions, sales and growth lead at Target group, Melanie Spencer, warned that employment levels “deteriorated in March”, after Office for National Statistics (ONS) data showed that the number of payrolled employees fell by 53,000 over Q1.

“Weakening labour market activity will inevitably feed into an increase in greater arrears in the future,” Spencer added. “That’s coming at banks and building societies fast – and when it arrives, unprepared lenders will feel like they’ve been hit by an express train.

“Owner-occupiers and landlord borrowers will need the support. Lenders will need the right systems in place to manage processes proactively. Early contact and remediation are key to keeping repossession a last resort and achieving better outcomes for borrowers and lenders alike. That requires investment in systems.”

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