Scottish Housing Market Review Q3 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. Since then, despite a small uptick in Q4 2025, there has been a general downward trend in the number of accounts entering arrears, with 10,673 accounts entering arrears in Q2 2025.

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 in arrears by degree of severity, shows furthermore that the share of lenders' outstanding regulated mortgage balances in arrears of more than 1.5% of the outstanding loan balance has edged down from a recent peak of 1.2% to stand at 1.1% in Q2 2025, although this remained significantly above the post-pandemic low of 0.7% in Q3 2022.

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 15,050 buy-to-let (BTL) mortgages in arrears of 1.5% or more of the outstanding balance across the UK at the end of Q2 2025, down by 5.5% from the previous quarter. This is the sixth consecutive quarter-on-quarter fall, with the number of BTL mortgages in arrears falling by 23% 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 0.78% 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 Q2 2025 mortgages which were 1.5% or more in arrears represented 1.5% of the total non-regulated residential loans, down slightly from 1.6% the previous quarter.

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 regulated mortgages, the downward trend in the number of mortgages entering arrears and the stabilisation in the stock of mortgages in arrears described above have not yet translated into falling possessions, with the 1,270 new possessions in Q2 2025 representing a 10% quarterly increase and a 36% annual increase. However, new regulated possessions remain somewhat below their pre-covid levels (the quarterly average in 2019 was 1,318). [Source: FCA]

The number of non-regulated mortgage possessions in Q2 2025 was 1,158, which was similar to the level recorded in Q1 2025 (1,156), although it was an increase of 10.5% on Q2 2024. The number of non-regulated mortgage possessions remain above their pre-covid levels (a quarterly average of 889 in 2019). [Source: FCA]

With respect to BTL mortgages specifically, UK Finance data show that there were 790 BTL mortgages taken into possession in Q2 2025, a 2.5% decrease from the previous quarter, but an annual increase of 11%. New possessions were also above pre-covid levels (the 2019 quarterly average was 668).

Source: FCA