According to the latest UK Finance figures, there were 87,380 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in Q2 2025, which is 3% down on the prior quarter.
Within that total, there were 29,840 homeowner mortgages in the lightest arrears band between 2.5% and 5% of the outstanding balance, which is also 3% down on the previous quarter.
UK Finance noted that there were 11,270 BTL mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2025, 5% less than in the previous quarter.
As part of the above figure, there were 4,100 BTL mortgages in the lightest arrears band, which is 6% less than in the previous quarter.
Mortgages in arrears accounted for 1% of all homeowner mortgages outstanding and 0.58% of all BTL mortgages outstanding in the second quarter of 2025.
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UK Finance said 1,340 homeowner mortgaged properties were taken into possession in the second quarter of 2025, 10% more than in the previous quarter.
However, the report said the numbers “remain significantly less than the long-term average”.
The report stated that 790 BTL mortgaged properties were taken into possession in the second quarter of 2025, 2% fewer than in the previous quarter.
Richard Pike, Phoebus Software’s head of sales and marketing, said: “The latest UK Finance figures present a mixed picture, with a welcome decline in mortgage arrears offset by a rise in possessions. This suggests that while fewer borrowers are falling behind on repayments, lenders are taking possession more frequently, which would indicate a more tight grip on risk when it comes to potential recoveries.
“As eligibility criteria for new lending continues to loosen and the risk curve increases in many lenders, this shouldn’t lead to complacency. Automated primary servicing to triage routine cases will allow lender[s] to dedicate resources where human intervention truly matters and get better results. Advanced automation not only reduces operational burden but enhances responsiveness and borrower outcomes.
“With the outlook for household finances remaining fragile and the spectre of higher taxes looming, now is the moment for lenders to lean in to intelligent, scalable arrears solutions. A more seamless servicing infrastructure will be essential to uphold performance and support vulnerable customers.”
