According to Pepper Advantage – which manages organic origination for 10 UK originators and has a portfolio of over 100,000 UK residential mortgages – across its mortgage portfolio, the arrears growth rate was 0%.
This was primarily attributed to a 0.1% drop quarter-on-quarter in the BTL arrears rate and comes after a “prolonged period of stress”, and it is the first time BTL arrears have fallen since 2021.
However, the report said arrears for BTL are around 23.4% higher than the same period last year, showing the “challenges UK landlords have faced as interest rates rose”.
Pepper Advantage said this had led to some BTL landlords exiting the market, with the number of BTL mortgages in its portfolio contracting by 4.9% in Q1 2025, but this is less pronounced than in previous quarters.
On the residential side, the percentage of mortgages in arrears climbed by 0.3% in the period.
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The lender said the increase corresponds with rising consumer price inflation, including housing costs.
Arrears for fixed rate mortgages rose by 4.5% compared to the prior quarter and arrears for variable rate mortgages grew by 1.4% over the same period.
From a regional perspective, East Anglia, the North East, the North West, Scotland, Wales and the West Midlands reported a drop in arrears.
This compares to the East Midlands, Greater London, the South East, the South West and Yorkshire and the Humber, where the arrears rate grew.
From an age perspective, all age groups except those aged 31-40 saw modest growth of 0.1-0.4 percentage points in their arrears rates. Those aged 31-40 saw the arrears rate fall by 0.1 percentage points.
Looking at originations, the firm said the new originations in the third quarter rose 4.7% in Q1 2025 compared to Q4 2024, driven by a steep increase in March.
It explained that the number of new originations in March was over 30% higher than in January or February, likely in anticipation of the stamp duty increases in April.
Pepper Advantage said Q2 new originations will be a “key data point to see how much the increase in stamp duty, combined with recent market turmoil, is impacting demand”.
Fraser Gemmell, CEO of Pepper Advantage, said: “Zero arrears rate growth for the first time since the cost-of-living crisis began is welcome news, especially with the improvement in the buy-to-let market.
“However, if we look closely at the data, there are still areas of concern – particularly, several consecutive quarters of arrears rate growth across London and the South East, where housing costs are highest.”
He continued: “Looking ahead, clouds appear to be gathering over the global economy. The risks of economic fallout from the trade war could prompt the Bank of England to follow the ECB and cut rates, potentially providing some relief.
“The prospect of higher inflation fuelled by disrupted supply chains, however, could unleash cost pressures that once again put financial strain on borrowers. We should not underestimate the potential impact of a challenging macroeconomic outlook and must remain prepared for whatever lies ahead.”
