The rate of mortgage arrears fell by 1.1% in Q4 2025, marking the third consecutive quarterly decline and the lowest arrears rate since Q4 2023, the latest data from Pepper Advantage shows.
The credit management and technology company released the latest data from its portfolio of over 100,000 UK residential mortgages.
It shows that the residential arrears rate declined by 0.9% in Q4, continuing a gradual improvement. Buy-to-let arrears fell by 10.4%, reflecting a large portfolio migration during the quarter alongside signs of broader stabilisation.
Arrears rates declined in all UK regions except London (+0.6%) and the South West (+2.1%). Younger borrowers aged 21-40 saw increased arrears growth from a low base, while arrears among those aged 41 and above eased.
The data also reveals that new mortgage originations reached a three-year high while direct debit rejections (DDRs) – a leading indicator of borrower stress – remained broadly stable heading into the holiday period.
In addition, new originations grew by 1.9% in Q4, following a strong Q3 rebound, to reach their highest level since Q4 2022. Pepper Advantage says the new origination pipeline "looks healthy heading into 2026".
Aaron Milburn, UK managing director at Pepper Advantage, commented: “Our Q4 results show clear, cautious progress. Arrears have fallen for a third straight quarter and new lending has returned to levels not seen since 2022 – the strongest signal yet that conditions in the UK mortgage market are beginning to stabilise.
“While our data points to a more resilient mortgage market moving into 2026, we share the caution shown by UK households. The outlook remains uncertain as changes in inflation, interest rates, or macro-economic shocks could quickly alter current trends.”
