Scottish Housing Market Review: Q1 2025

8. Mortgage Arrears and Possessions

8.1. Arrears

As shown in Chart 8.1, following a peak of 39,556 in Q4 2008 during the financial crisis, there was a long-term decline in the number of regulated mortgage accounts entering arrears across the UK, which continued during the Covid period, reaching a trough of 8,579 in Q3 2021.^[5] This was followed by a steady increase over the next three years, with accounts entering arrears reaching 15,706 in Q3 2023. However, this was followed by 4 consecutive quarterly declines, although in the last quarter there has been a small uptick, from 11,660 in Q3 2024 to 11,824 in Q4 2024.

Source: FCA. Includes both securitised and unsecuritised loans.

As the flow of mortgages into arrears has moderated, so the stock of mortgages in arears has stabilised. Chart 8.2, which plots the share of lenders' outstanding balances that were in arrears by degree of severity, shows that the share of lenders' outstanding regulated mortgage balances that were in arrears of more than 1.5% of the outstanding loan balance was 1.2% in Q4 2024, similar to its level in the previous 3 quarters.

Source: FCA. Includes both securitised and unsecuritised loans; share is calculated as balances on cases which are in arrears expressed as a % of total loan balances.

UK Finance data shows that there were 17,130 buy-to-let (BTL) mortgages in arrears of 1.5% or more of the outstanding balance across the UK at the end of Q4 2024. This is the fourth consecutive quarter-on-quarter fall, with the number of BTL mortgages in arrears falling by 12% since its recent peak of 19,570 in Q4 2023. BTL mortgages in arrears as share of total BTL mortgages has fallen from 0.99% to 0.88% over this period.

FCA data for non-regulated lending (which includes BTL lending but also some other types of lending, and is collected on a somewhat different basis^[6]) shows that at the end of Q4 2024 mortgages which were 1.5% or more in arrears represented 1.7% of the total non-regulated residential loans. The share has been at similar levels for the last five quarters, reflecting the decrease in non-regulated mortgages entering arrears.

Source: Buy to Let – UK Finance; Non-regulated loans – FCA. FCA data includes both securitised and unsecuritised loans; the share of loans in arrears is the number of loans in arrears as a percentage of all non-regulated loans.

8.2. Possessions

For both regulated and unregulated mortgages, new possessions have been rising to reflect the previous upward trend in in the stock of mortgages in arrears. Over the year to Q4 2024, FCA data shows that the number of new regulated mortgage possessions increased by 302 to reach 1,000 (up 43%), while the number of new non-regulated mortgage possessions rose by 296 to 1,057 (up 39%). However, with the stock of mortgages in arrears now stabilising as the flow of mortgages into arrears slows, it might be expected that new possessions might also begin to stabilise. Indeed, the quarterly increase in regulated possessions in Q4 2024 was only 3%, down from 23% in Q1 2024, while non-regulated possessions fell by 4% over the quarter to Q4 2024.

New regulated possessions also remain significantly below their pre-covid levels (the quarterly average in 2019 was 1,318). While non-regulated mortgages are above their level in 2019 (a quarterly average of 889), they remain significantly below the levels in the years following the 2008 financial crisis, as illustrated by Chart 8.4,

With respect to BTL mortgages specifically, UK Finance data show that there were 700 BTL mortgages taken into possession in Q3 2024: while a 30% increase on Q1 2023, which also took the level 5% over pre-covid levels (the 2019 quarterly average was 668), the level of new possessions in Q4 204 was similar to the previous two quarters.

Source: FCA