Pepper Advantage, a global credit intelligence company, says the arrears environment for UK residential mortgages continued to improve – albeit slightly.

There’s been an 0.8% drop in the arrears rate in the third quarter of 2024 relative to Q2. However, the arrears rate for Buy-to-Let mortgages continued to rise, increasing nearly 10% quarter-on-quarter.

Key findings include:

• Arrears stabilise: The total percentage of UK mortgages in arrears grew by only 0.1% in Q3 2024. This is the lowest rate 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. Additionally, the total number of BTL mortgages dropped 1.6% in Q3 relative to Q2 and 10.6% compared to this time last year.
  
• Originations continue rebound over 2023: 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. The outlook for the final quarter remains steady, 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 occur 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 on UK mortgage holders. The percentage of UK 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 saw 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 for the second consecutive quarter.
  
• West Midlands: The West Midlands recorded an arrears growth rate of just 0.1% in Q3.

A Pepper Advantage spokesperson says: “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 be plateauing, with some regions such as the South West recording a pronounced decline in the arrears rate. Alongside the encouraging arrears data, the number of new originations remains solid, with falling interest rates starting to have a modest impact.”

“Looking to 2025, the data shows that 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 grapple 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, and we’ll be following the data closely as we continue to support borrowers through uncertain times.”