UK arrears rate drops by 0.3% but increase in late payments indicate potential trouble ahead
LONDON–(BUSINESS WIRE)–Pepper Advantage, a global credit management and technology company, today released the latest data on its portfolio of over 100,000 UK residential mortgages. In Q3 2025, the arrears rate dropped 0.3%, following a significant 4.4% decline in Q2 2025*. The Q3 data also highlights a rebound in new mortgage originations, which surged by 20.2% compared to the previous quarter.
Key Findings
- Arrears Rate Declines: The arrears rate across Pepper Advantage’s UK portfolio decreased by 0.3% in Q3 2025 compared to Q2 2025. This is only the second drop in arrears since Q3 2022 and follows a 4.4% decline last quarter.
- Residential Arrears Improve: Residential mortgages saw a 0.2% drop in the arrears rate, although this is a deceleration from the 4.7% decrease observed in Q2.
- Buy-to-Let (BTL) Trends: The BTL arrears rate increased slightly by 0.1%, and Direct Debit Rejections (DDRs), a form of missed payment, fell 7.9%. This data indicates that the recent instability seen in Pepper Advantage’s BTL portfolio may be past its peak, as many landlords who struggled in a higher rate environment have exited the market.
- Increased Direct Debit Rejections**: Total UK DDRs grew by 4.2% in Q3, contrasting with a 5.1% decline in Q2. This increase may indicate rising financial strain amid ongoing inflationary pressures, which saw CPIH rise 4.1% in August 2025.
- New Originations Rebound***: New originations grew 20.2% compared to Q2 2025, when demand for new originations evaporated following the March expiration of the Stamp Duty holiday.
“While we have witnessed a decrease in the arrears rate for the second quarter, the contextual factors suggest that the situation remains precarious for many borrowers,” said Aaron Milburn, UK Managing Director at Pepper Advantage. “Our data, particularly the rise in direct debit rejections, indicates that the overall improvement in arrears, while encouraging, may not reflect a sustained positive trend. We remain watchful as inflation continues to impact household budgets, particularly with rising food and drink costs, as we head into the holiday season.”
For additional insights and detailed statistics, please refer to the complete report on Pepper Advantage’s website.
*Mortgages in arrears are defined as those that are 30+ days delinquent in payment.
**A direct debit rejection is a form of missed mortgage payment that typically occurs due to insufficient funds when a direct debit is called and is an early indicator of borrower stress.
***Pepper Advantage manages organic origination for 10 UK originators, 80% of which are capital markets funded.
About Pepper Advantage
Pepper Advantage is a global credit intelligence company that offers a range of data led and credit management services via a technology platform that spans across Asia, Europe, and the United Kingdom. The company, with $55 billion (USD) assets under management, operates in multiple asset classes including residential and commercial mortgages, real estate, SME loans, asset financing and leasing, auto and consumer loans, credit cards, retail finance and BNPL, in addition to offering outsourced operational support services to both financial and non-financial clients. It helps investors, financial institutions, fintechs, and banks manage their credit portfolios, reducing the cost and complexities of systems and supporting new non-bank lending, with a particular focus on clients whose customers are underserved by traditional mainstream lenders.
Contacts
Media contact
[email protected]
