Buy to let mortgage arrears drop to two-year low

Buy to let mortgage (BTL) arrears have fallen as the mortgage market shows signs of improvement, according to new data.

Findings from technology company Pepper Advantage suggest the UK mortgage market is beginning to stabilise after arrears reached a two-year low.

However, the firm warns there are still concerns about the future of the mortgage market, particularly around interest rates.

Arrears rates declining

According to the report, the overall percentage of mortgages in arrears fell by 1.1%. This improvement was seen across both residential and BTL mortgages, which dropped by 0.9% and 10.4% respectively.

The report says the significant decline in the BTL arrears rate is largely due to a portfolio migration that took place over the course of the quarter.

However, anecdotal evidence from Pepper Advantage’s arrears team also points to an overall improvement in the arrears landscape.

Every region in the UK, except London and the South West, saw arrears rates decline in the final quarter of the year. London’s arrears rate rose by 0.6%, while the South West recorded an increase of 2.1%.

Mortgage market stabilising

Aaron Milburn, UK managing director at Pepper Advantage, said: “Our Q4 results show clear, cautious progress. Arrears have fallen for a third straight quarter and new lending has returned to levels not seen since 2022, the strongest signal yet that conditions in the UK mortgage market are beginning to stabilise.

“While our data points to a more resilient mortgage market moving into 2026, we share the caution shown by UK households. The outlook remains uncertain as changes in inflation, interest rates, or macro-economic shocks could quickly alter current trends.”

Last week, the Bank of England announced it would keep interest rates at 3.75%, leaving borrowing costs at their lowest point since February 2023.

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