Buy-to-let mortgage arrears dropped sharply in the final quarter of 2025, falling 10.4% as landlords demonstrated resilience despite ongoing market challenges.
Pepper Advantage, a global credit management and technology company, analysed its portfolio of over 100,000 UK residential mortgages and found that buy-to-let borrowers outperformed their residential counterparts. The decline reflected both a large portfolio migration during the quarter and signs of broader stabilisation in the landlord sector.
Overall, UK arrears fell 1.1% quarter-on-quarter, marking the third consecutive quarterly decline and the lowest arrears rate since Q4 2023. However, the buy-to-let performance stood out as landlords maintained payment discipline heading into the holiday period.
"Our Q4 results show clear, cautious progress," said Aaron Milburn, UK managing director at Pepper Advantage. "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."
Residential arrears declined by 0.9% in Q4, continuing a gradual improvement. The contrast between buy-to-let and residential performance highlighted how different borrower segments responded to market conditions.
Regional patterns varied significantly across the country. Arrears rates declined in all UK regions except London, which saw a 0.6% increase, and the South West, where arrears rose 2.1%. Younger borrowers aged 21-40 experienced increased arrears growth from a low base, while arrears among those aged 41 and above eased.
Direct debit rejections, a leading indicator of borrower stress, remained broadly stable. The total DDR rate rose just 0.7% in Q4, indicating households stayed budget-focused over the holiday period.
New mortgage originations reached a three-year high, growing 1.9% in Q4 2025 following a strong Q3 rebound. This marked the highest level since Q4 2022, with the new origination pipeline looking healthy heading into 2026.
"While our data points to a more resilient mortgage market moving into 2026, we share the caution shown by UK households," Milburn added. "The outlook remains uncertain as changes in inflation, interest rates, or macro-economic shocks could quickly alter current trends."
