Mortgage arrears fall to three-year low but 'environment remains fragile': UK Finance

Mortgage arrears have fallen for the seventh consecutive quarter to the lowest level since Q2 2023, the latest UK Finance figures show.

There were 79,110 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the first quarter of 2026, 2% fewer than in the previous quarter.

Within the total, there were 27,290 homeowner mortgages in the lightest arrears band (between 2.5 and 5% of the outstanding balance), also 2% fewer than in Q4 2025.

Buy-to-let arrears fell by 6% in the latest quarter, with buy-to-let mortgages in the lightest arrears band down 7%.

Homeowner mortgage repossessions rose 3% on the previous quarter but remain below the long-term average. 

Buy-to-let repossessions also rose by 5% compared to the previous three months.

Richard Pike, sales and marketing director of Phoebus Software, commented: The latest UK Finance data showing arrears continuing to fall suggests that, despite a challenging backdrop, many borrowers are still managing to stay on top of their mortgage commitments. This resilience comes even as the UK economy has remained sluggish in early 2026, with low growth and ongoing global pressures – particularly higher energy costs and persistent inflation – continuing to weigh on household finances.

“Lower mortgage rates compared to peak levels in 2024, alongside some stabilisation in inflation, have provided a degree of relief, particularly for borrowers on variable and tracker mortgages. However, the picture is far from risk-free. 

“Borrowers coming off ultra-low fixed-rate deals are still facing a significant jump in monthly payments, and labour market pressures are beginning to build.

“There is a note of caution as repossessions have risen slightly, underlining the importance of timely intervention to manage early signs of stress. The figure, however, remains well below the long-term average.

“Lenders should not become complacent though. The environment remains fragile, and early intervention is key. Having robust servicing systems in place that can identify emerging stress and support customers quickly will be critical to maintaining this positive trend.”

David Miller, divisional director at Spicerhaart Corporate Sales, said: “The good work of lenders is on show once again as we see arrears cases fall across all bands in Q1. While this is clearly great news, we do have to address the elephant in the room. The landscape is changing rapidly with the ongoing Iran conflict derailing the future path of interest rates and inflation. 

“In recent months, we have seen the number of instructions coming to us has increased – particularly for support with assisted voluntary sales. With no signs of an end to this conflict and inflation likely to climb further, lenders must keep that laser focus on forbearance, arrears management and proactive intervention and support. 

“We were pleased to see leasehold reform outlined in the King’s Speech this week and it can’t come soon enough – especially as leasehold properties now make up 54% of the properties we manage for clients. Leasehold remains a primary driver behind why properties are coming into possession – whether it’s surging service charges, doubling ground rent or increasing difficulties with management companies. This is eroding demand and interest, as well as significantly affecting resale values. It’s an area where urgent action from the Government is needed, not further delays caused by yet another Prime Minister merry-go-round. 

“Given the current complexities, we are seeing more lenders looking to outsource to trusted partners with real expertise in asset management – helping them to understand the value and any potential risk within their mortgage book, act early and ensure good outcomes for borrowers. On the ground, it is great to see lenders continue to work proactively and in the best interests of their customers.”