Mortgage arrears fall for 10th straight quarter as the market holds firm

Despite a base rate rise and ongoing cost-of-living pressures, UK mortgage arrears fell for the tenth consecutive quarter in Q3 2026, with homeowner and buy-to-let (BTL) figures alike continuing a decline that began more than two years ago. 

The number of homeowner mortgages in arrears fell to 76,080 in Q3 2026, down 2% in the quarter and 10% year-on-year, according to UK Finance’s latest arrears and possessions data. BTL arrears tracked the same direction, dropping 22% year-on-year and 3% in the quarter to 8,170.  

Total possessions rose slightly from 1,780 to 1,840 quarter-on-quarter, though they remain 20% lower than the same period in 2025 — the second consecutive year-on-year fall. 

Lender intervention driving the trend 

The sustained fall in arrears has not happened by accident. Lenders have leaned heavily on early customer engagement and support arrangements — payment deferrals, term extensions, temporary interest-only switches — to keep borrowers out of serious difficulty. The Financial Conduct Authority's (FCA) finalised guidance on supporting mortgage borrowers set clear expectations on this front, and the data suggests most lenders have followed through. 

Melanie Spencer, growth director at Target Group, said the figures reflect that effort. “The continued fall in mortgage arrears is encouraging and suggests that despite very clear headwinds, many borrowers are continuing to keep up with their mortgage payments. Importantly, it also reflects the focus lenders have kept on early intervention and proactive customer support to help prevent financial difficulties from escalating.” 

Possessions at their lowest since late 2024 

Homeowner possessions were unchanged in the quarter, sitting at their lowest level since Q4 2024. BTL possessions rose 10% in the quarter to 690 but remained 23% below a year earlier.  

David Miller, divisional director at Spicerhaart Corporate Sales, said the possession numbers reinforce a positive lender behaviour. He added: "This fantastic news is combined with repossession levels remaining static, which demonstrates that this is still the last resort for lenders. The positive trend on arrears can continue, supported by the tremendous work of lenders to prioritise proactive engagement and good forbearance where necessary.” 

However, he flagged two areas that will continue to put pressure on the figures: borrowers rolling off fixed-rate deals onto higher rates, and those in leasehold properties — a segment he said accounts for more than half of the properties his firm manages on behalf of lenders. 

Rate rise adds a new variable 

UK Finance’s James Tatch, head of analytics, noted that borrowers are “currently dealing with a rising cost of living, as well as the impact the war in the Middle East is having on interest rates,” even as the headline data remains positive.  

The Bank of England raised the base rate last week for the first time in more than three years. Spencer noted that mortgage pricing does not track the base rate directly, meaning borrowers refinancing now face varying affordability pressures depending on their deal and circumstances.  

Her view is that lenders need the servicing infrastructure to respond as those circumstances shift. “We’re seeing more lenders recognise the importance of working with specialist outsourced partners, combining experienced people, technology and regulatory expertise to support borrowers through changing circumstances and achieve better customer outcomes.” 

With the base rate now moving again and a wave of fixed-rate maturities still to come, the next few quarters will show whether the market’s resilience holds or moves in a different direction.