UK Residential Mortgage Arrears Fall to Lowest Since 2022 but Buy-to-Let Borrowing Stress Increases

• UK mortgages in arrears grew by only 0.1% in Q3 2024
• Buy-to-Let (BTL) mortgage arrears rate continued to rise by nearly 10% QoQ

LONDON--(BUSINESS WIRE)--Pepper Advantage, a global credit intelligence company, today published the latest data on its portfolio of over 100,000 UK residential mortgages that shows that the arrears environment for residential mortgages continued to improve – albeit slightly – with a 0.8% drop in the arrears rate relative to Q2 2024. However, the arrears rate for Buy-to-Let (BTL) mortgages continued to rise, increasing nearly 10% quarter-on-quarter.

Key findings include:

• Arrears stabilise: The percentage of UK mortgages in arrears grew by only 0.1% in Q3 2024. This is the lowest recorded since Q3 2022. For the second quarter in a row, the improvement in the UK’s overall arrears rate was driven by residential mortgages, which saw a decline of 0.8% following the 0.6% drop seen in the Q2.
• BTL arrears grow: The Q3 arrears rate for Buy-to-Let mortgages grew 9.7% compared to Q2. This follows significant increases in Q2 and Q1. The number of new BTL mortgages dropped 1.6% in Q3 relative to Q2 and 10.6% compared to this time last year.
• Originations fall: In the residential market, new originations in the third quarter dropped 7.6% compared to the high seen in Q2 2024 (which grew a substantial 20.9% over Q1), continuing the overall better performance seen in 2024 over 2023. Despite falling originations, the outlook for the final quarter remains strong, with falling interest rates and increased activity in the housing market leading to more demand from buyers.
• DDR stress: Direct Debit Rejections (DDRs), a form of missed mortgage payment, typically occurs due to insufficient funds when a direct debit is called and is an early indicator of borrower stress. Despite the general improvement across regions, the latest DDR data shows the macroeconomic environment continues to weigh UK mortgage holders. The percentage of residential mortgages that experienced a direct debit rejection in Q3 2024 grew 1.9% compared to the 0.4% growth seen in Q2. DDRs for Buy-to-Let mortgage holders grew 2.7% compared to Q2.

Analysing arrears by region shows declining rates across large parts of the UK. While overall rates of arrears have declined, the rate of decline varies across regions.

• Greater London: Greater London recorded its lowest growth rate since 2021 – only 0.4%. This compares to a Q2 growth rate of 6.0%.
• South West: The South West region saw a notable decline in the arrears rate, registering a decline of 1.5% during Q3 – the first decline for this region since 2022.
• North East, North West, Scotland, and Yorkshire and Humberside: Rates of arrears dropped in Q3 compared to Q2.
• West Midlands: The West Midlands recorded an arrears growth rate of just 0.1% in Q3.

Aaron Milburn, UK Managing Director for Pepper Advantage, said: “Our latest data shows that 2024 has been a year of improvement for the UK mortgage market. The overall arrears rate for residential mortgages appears to have plateaued, with some regions such as the South West recording a pronounced decline in the rate of arrears. Alongside the encouraging arrears data, the number of new originations remains solid, with falling interest rates starting to have an impact. Looking to 2025, the data also shows headwinds clearly remain and the signs of structural challenges in the buy-to-let market are cause for concern with a knock-on effect for renters. Private landlords with BTL mortgages continue to exit the market as they grabble with the entrenched higher rate environment and the potential for additional taxes, increasing supply-side pressures and pushing up rental prices. Time will tell whether this divergence develops into a wider trend, but we’ll be following the data closely as we continue to support borrowers through difficult circumstances.”

Pepper Advantage’s UK Credit Intelligence report is published quarterly. The full Q3 2024 report is available here and Q2 2024 report here.

* Mortgages in arrears are defined as those that are 30+ days delinquent in payment.

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.

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