Mortgage arrears continue to fall in ‘encouraging’ sign
The number of mortgages in arrears has continued on its downward path, according to the figures for Q3 2026.
UK Finance found that 76,080 homeowner mortgages were in arrears of 2.5% or more of the outstanding balance in Q3 – 2% down on Q2.
Within that, 26,560 fell into the lightest arrears band of 2.5-5% of the outstanding balance. Again, this was 2% less than Q2.
Some 8,170 buy-to-let (BTL) mortgages were in arrears of 2.5% or more of the outstanding balance, 3% down on Q2, of which 3,090 were in the lightest arrears band. This was 4% up on the prior period.
Of all homeowner mortgages outstanding, those in arrears made up just 0.87%. For all BTL mortgages outstanding, the figure was 0.43%.
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BTL possessions up
The number of homeowner-mortgaged properties taken into possession saw no change from Q2 2026, at 1,150. However, UK Finance noted that this was significantly below the long-term average, with quarterly possessions reaching a high of 12,000 during the 2008-09 financial crisis.
On a BTL basis, 690 mortgaged properties were taken into possession, a rise of 10% versus the previous quarter.
‘Encouraging’ sign but households still under pressure
Against the inflationary backdrop, today’s figures are a positive sign, with Melanie Spencer, growth director at Target Group, saying: “The continued fall in mortgage arrears, extending a downward trend of more than two years, is encouraging and suggests that despite very clear headwinds, many borrowers are continuing to keep up with their mortgage payments. Importantly, it also reflects the focus lenders have kept on early intervention and proactive customer support to help prevent financial difficulties from escalating.”
Spencer continued: “As we’ve seen, mortgage rates do not move in lockstep with the base rate. The Bank of England increased the base rate last week for the first time in more than three years, although Andrew Bailey was clear that this should not be viewed as the first of many hikes. At the same time, though, he couldn’t say for sure it would be the last either. Borrowers refinancing, adjusting to changes in household expenditure and navigating wider economic difficulties will therefore continue to face different affordability challenges.
“As a result, lenders must maintain a clear understanding of their customers’ circumstances and ensure they have the servicing capability to respond when those circumstances change. We’re seeing more lenders recognise the importance of working with specialist outsourced partners, combining experienced people, technology and regulatory expertise to support borrowers through changing circumstances and achieve better customer outcomes.”
Richard Pike, chief sales and marketing officer at Phoebus Software, added: “Despite the growing pressures on household finances over recent months, UK borrowers remain resilient in the face of rising costs, with mortgage arrears falling for a ninth consecutive quarter.
“The continued improvement in arrears helps to reinforce confidence in the UK mortgage sector and support lenders’ appetite to lend. However, there is a risk that improving arrears figures mask some of the underlying pressures facing households. The impact of higher borrowing costs and inflation can take time to feed through, particularly for borrowers who have yet to refinance onto higher rates.”
He continued: “Meanwhile, the sharp increase in unsecured borrowing raises questions about whether some households are relying on credit to assist with everyday spending.
“Combine this with real household disposable income expected to come under further pressure next year, lenders cannot afford to become complacent. The risk is increasingly concentrated among those households facing a combination of higher borrowing costs and changing personal circumstances.
“Maintaining this progress will depend on lenders having a clear understanding of the pressures facing their customers, rather than relying solely on arrears as an indicator of financial difficulty. Changes in income, household circumstances or mortgage affordability can all create vulnerabilities before they show up in payment data. Having the right information and servicing capabilities to understand these changes will help lenders tailor their approach, provide appropriate support and prevent temporary financial difficulties from becoming longer-term problems.”
