Mortgage arrears declined across both residential and buy-to-let lending in the first quarter of 2026, although possessions rose slightly, according to the latest figures from UK Finance.
The number of homeowner mortgages in arrears of at least 2.5% of the outstanding balance fell to 79,110 in Q1, a 2% drop on the previous quarter. Buy-to-let arrears also declined, falling 6% quarter-on-quarter and 24% year-on-year to 8,960 cases.
Overall arrears levels remain low, accounting for 0.91% of homeowner mortgages and 0.47% of buy-to-let loans. This remains well below historic peaks, with combined arrears reaching 216,400 during the global financial crisis in 2009.
Despite the improvement in arrears, possession activity increased modestly. A total of 1,250 homeowner properties were repossessed in Q1, up 3% on the previous quarter, while buy-to-let possessions rose 5% to 810 cases. Year-on-year, possession levels were unchanged and continue to sit significantly below long-term averages.
UK Finance said most possessions relate to older loans, with more than two-thirds involving mortgages arranged at least a decade ago. Lenders continue to treat repossession as a last resort, typically following prolonged financial difficulty.
MARKET RESILIENCE AND EMERGING RISKS
James Tatch, head of analytics at UK Finance, said: “The number of mortgages in arrears continues to fall for both residential and buy-to-let mortgages. While possessions are up very slightly on the previous quarter, they remain low by historic standards.
“Lenders stand ready to support customers who may be worried about meeting their repayments. We would always recommend customers contact their lender as soon as possible to discuss the tailored help available.”
Richard Pike, sales and marketing director at Phoebus Software, said: “The latest UK Finance data showing arrears continuing to fall suggests that, despite a challenging backdrop, many borrowers are still managing to stay on top of their mortgage commitments.
“This resilience comes even as the UK economy has remained sluggish in early 2026, with low growth and ongoing global pressures – particularly higher energy costs and persistent inflation – continuing to weigh on household finances.
“Lower mortgage rates compared to peak levels in 2024, alongside some stabilisation in inflation, have provided a degree of relief, particularly for borrowers on variable and tracker mortgages. However, the picture is far from risk-free.
“Borrowers coming off ultra-low fixed-rate deals are still facing a significant jump in monthly payments, and labour market pressures are beginning to build.
“There is a note of caution as repossessions have risen slightly, underlining the importance of timely intervention to manage early signs of stress. The figure, however, remains well below the long-term average.
“Lenders should not become complacent though. The environment remains fragile, and early intervention is key. Having robust servicing systems in place that can identify emerging stress and support customers quickly will be critical to maintaining this positive trend.”
ELEPHANT IN THE ROOM
David Miller, divisional director at Spicerhaart Corporate Sales, said: “The good work of lenders is on show once again as we see arrears cases fall across all bands in Q1. While this is clearly great news, we do have to address the elephant in the room. The landscape is changing rapidly with the ongoing Iran conflict derailing the future path of interest rates and inflation.
“In recent months, we have seen the number of instructions coming to us has increased – particularly for support with assisted voluntary sales. With no signs of an end to this conflict and inflation likely to climb further, lenders must keep that laser focus on forbearance, arrears management and proactive intervention and support.
“We were pleased to see leasehold reform outlined in the King’s Speech this week and it can’t come soon enough – especially as leasehold properties now make up 54% of the properties we manage for clients. Leasehold remains a primary driver behind why properties are coming into possession – whether it’s surging service charges, doubling ground rent or increasing difficulties with management companies.
“This is eroding demand and interest, as well as significantly affecting resale values. It’s an area where urgent action from the government is needed, not further delays caused by yet another Prime Minister merry-go-round.
“Given the current complexities, we are seeing more lenders looking to outsource to trusted partners with real expertise in asset management – helping them to understand the value and any potential risk within their mortgage book, act early and ensure good outcomes for borrowers. On the ground, it is great to see lenders continue to work proactively and in the best interests of their customers.”
NO TIME FOR COMPLACENCY
Melanie Spencer, growth director at Target Group, part of Tech Mahindra, said: “There’s a surprising amount of positive news about. The PMI showed business activity rising in April thanks to an upturn in manufacturing production and output from the services sector. Retail sales rose in March, even when excluding the increased cost of fuel.
“Living standards are improving at the fastest pace since 2022, according to the ONS. And the economy unexpectedly grew during the first full month of the Iran war – suggesting the Middle East conflict has not yet affected growth as much as feared. Growth of 0.3% in gross domestic product in March, down from a revised 0.4% rise in February. That was significantly better than I expected.
“On the face of it, these figures back up that rosy assessment. But these stats also highlight that it’s no time for complacency: the number of properties taken into possession has increased with a total of 1,250 homeowner mortgaged properties being taken into possession in Q1 2026. This is the thin end of the wedge.
“Lenders should aim to get on the front foot to ensure their servicing operations have the right colleagues, processes, and platforms in place to handle the increased demand and deliver the proper customer outcomes to meet their regulatory obligations.
“A strong customer experience is also critical – proactive communication and early engagement with borrowers can encourage customers to seek support sooner, helping to reduce arrears and improve long-term outcomes for both lenders and borrowers.”
UK Finance reiterated that lenders continue to offer tailored support to borrowers facing financial difficulty, and that contacting a lender early to discuss options will not affect a customer’s credit score.