Overall UK arrears rate drops by 4.4%; improvement seen in every UK region for first time since Q2 2021
Pepper Advantage, a global credit management and technology company, today released the latest data on its portfolio of over 100,000 UK residential mortgages. Q2 2025 marks the first quarter since the COVID-19 pandemic in which both arrears and direct debit rejections (DRRs) have declined, with the overall arrears rate decreasing by 4.4% and the DRR rate falling by 5.1%
The reduction in UK arrears, including both residential and buy-to-let mortgages, was driven by a significant 4.7% decline in the residential mortgage arrears rate, which has tracked declines in Consumer Price Inflation, including housing costs, since 2024. Eased living costs and earlier interest rate reductions together supported Pepper Advantage's residential mortgage portfolio in Q2.
Notably, arrears rates fell across every UK region for the first time since Q2 2021, indicating a UK-wide easing of financial pressure after years of inflation and rising living costs.
Key findings
- The buy-to-letarrears rate rose by 0.9% following a modest decline in Q1. However, this marks a sharp slowdown compared to H1 2024, when the arrears rate grew by more than 10% in each of the first two quarters. Year-on-year, BTL arrears remain 9.5% higher, underscoring the challenges landlords face as the market changes.
- Regional trends: Arrears rates declined in 11 UK regions in Q2 2025 the first time this has occurred since Q2 2021. The largest improvements were seen in the North West (-7.9%), Wales (-7.7%), and East Midlands (-7.0%), while London (-0.9%) and the South East (-3.1%) posted the smallest declines.
- Direct Debit Rejectionsfell by 5.1%, the largest drop since Q1 2021.
- New Originations decreased by 3.2%, reflecting the impact of the March expiration of the stamp duty holiday. New originations peaked in March, then dropped significantly in April before recovering in May and June.
Aaron Milburn, Managing Director, UK, Pepper Advantage, said:
"The significant drop in residential mortgage arrears, alongside the simultaneous decline across all UK regions, is a promising sign that some household financial pressures may be easing after years of inflation and rising living costs. This marks the most positive quarterly movement we have observed since this report began.
"It is important to remember that any recovery remains fragile. Unexpected economic shocks or hits to household budgets could quickly reverse this improvement. We remain watchful as we enter the second half of the year and are ready to support borrowers in whatever ways they need."
Pepper Advantage's UK Credit Intelligence report is published quarterly the full Q2 2025 report is available here and the full Q1 2025 report here.
*Mortgages in arrears are defined as those that are 30+ days delinquent in payment.
**A direct debit rejection is a form of missed mortgage payment that typically occurs due to insufficient funds when a direct debit is called and is an early indicator of borrower stress.
**Pepper Advantage manages organic origination for 10 UK originators, 80% of which are capital markets funded.
About Pepper Advantage
Pepper Advantage is a global credit intelligence company that offers a range of data led and credit management services via a technology platform that spans across Asia, Europe, and the United Kingdom. The company, with $55 billion (USD) assets under management, operates in multiple asset classes including residential and commercial mortgages, real estate, SME loans, asset financing and leasing, auto and consumer loans, credit cards, retail finance and BNPL, in addition to offering outsourced operational support services to both financial and non-financial clients. It helps investors, financial institutions, fintechs, and banks manage their credit portfolios, reducing the cost and complexities of systems and supporting new non-bank lending, with a particular focus on clients whose customers are underserved by traditional mainstream lenders.
View source version on businesswire.com: https://www.businesswire.com/news/home/20250806776970/en/
Contacts:
Media contact
PepperAdvantage@greentarget.co.uk
