Scottish Housing Market Review Q4 2025

8. Mortgage Arrears and Possessions

8.1. Arrears

The number of regulated mortgage accounts entering arrears in the UK nearly doubled (up 83%) over the period from Q3 2021 to Q3 2023 as interest rates rose. Since then, mortgages entering arrears have been on a declining trend, falling by nearly a third (32%). While this is in line with the decrease in interest rates on new mortgages (both fixed and floating-rate) as well as floating-rate existing mortgages over this period, it is worth noting that this fall has happened even though interest rates on fixed-rate existing mortgages have continued to trend up (see Chart 6.2, and also Chart 6.4 which shows that most existing mortgages are on fixed rates). At 10,621 in Q3 2025, the number of mortgages entering arrears is also significantly (17%) below the quarterly average in 2019 (12,731), prior to the pandemic.

Source: FCA. Includes both securitised and unsecuritised loans.

The decrease in mortgages entering arrears has fed through to the total stock of regulated UK mortgage accounts in arrears, which has fallen by 10% from a post-pandemic peak of 148,943 in Q2 2024 to 134,055 in Q3 2025. [Source: FCA] Similarly, Chart 8.2, which breaks down arrears by degree of severity, shows 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 1.0% in Q3 2025. However, this remains 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 13,920 buy-to-let (BTL) mortgages in arrears of 1.5% or more of the outstanding balance across the UK at the end of Q3 2025, down by 7.5% from the previous quarter. This is the seventh consecutive quarter-on-quarter fall, with the number of BTL mortgages in arrears falling by 29% 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 0.72% 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^[5]) shows that at the end of Q3 2025 mortgages which were 1.5% or more in arrears represented 1.4% of the total non-regulated residential loans, down slightly from 1.5% 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 stock of mortgages in arrears described above have not yet translated into falling possessions, with the 1,328 new possessions in Q3 2025 representing an annual increase of 37%. However, new regulated possessions were similar to their pre-covid levels (a quarterly average of 1,318 in 2019). [Source: FCA]

Meanwhile, there were 1,155 non-regulated mortgage possessions in the UK in Q3 2025. This represents a 1.2% decrease compared to Q2 2025, but an increase of 4.4% compared to the same quarter in 2024. The number of non-regulated mortgage possessions remains above its pre-covid levels (a quarterly average of 889 in 2019). [Source: FCA]

With respect to BTL mortgages (a component of non-regulated mortgages), UK Finance data show that there were 900 BTL mortgages taken into possession in Q3 2025, a 13.9% decrease from the previous quarter, but an annual increase of 28.6%. New possessions were also above pre-Covid levels (the 2019 quarterly average was 668).

Source: FCA