Prime mortgage arrears hold steady as non-prime trends split
Among 241 UK residential mortgage-backed security (RMBS) transactions, the proportion of loans more than 30 days in arrears fell slightly to 6.3% in July 2026 from 6.6% a year earlier, according to data from Morningstar DBRS.
Loans more than 90 days in arrears also declined to 4.4% from 4.6%.
While arrears levels remained relatively high, both measures have improved since reaching peaks in March 2025.
Borrowers experiencing more serious arrears have shown little change over the past year, despite the higher interest rate environment.
In the first quarter of 2026, 2% of securitised mortgages were more than 10% in arrears, broadly unchanged from 1.9% a year earlier.
The share of loans more than 5% in arrears edged down to 3.4% from 3.5%.
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Prime mortgage arrears bump up slightly
Prime mortgage arrears remained at historically low levels, although there was a slight increase in borrowers falling behind on repayments during the year.
As of July 2026, 0.7% of prime mortgages were more than 30 days in arrears, up from 0.6% a year earlier, while 90-plus-day arrears were unchanged at 0.3%.
The rise came as mortgage rates increased again in early 2026, putting renewed pressure on some borrowers. However, arrears in the prime sector remain low by historical standards.
Diverging performance
The report emphasised that arrears performance continued to diverge between older and newer non-prime mortgage portfolios during late 2025 and the first half of 2026.
Older, pre-financial crisis loan books saw arrears continue to improve.
These portfolios typically had greater exposure to variable-rate mortgages, meaning borrowers benefitted more quickly from falling interest rates.
Many also held mortgages that had been in place for years, allowing borrowers to build up significant equity as house prices have grown.
This has improved their ability to refinance onto more competitive rates and lower loan-to-value (LTV) products.
Clare Wootton, vice president of European structured finance ratings at Morningstar DBRS, said: “Prime borrowers continue to benefit from strong underwriting standards and low arrears levels, even as refinancing pressures increase.
“In contrast, non-prime performance is increasingly divided between legacy portfolios, which are benefitting from lower rates and stronger borrower equity positions, and more recent post-GFC portfolios, where adverse selection and refinancing challenges are contributing to persistently elevated arrears.
“As policymakers consider reforms to mortgage lending rules and lenders prepare for a significant volume of borrowers reaching the end of fixed rate deals, the balance between improving access to credit and maintaining prudent lending standards will be critical to the long-term performance of the UK mortgage market.”
