BTL mortgage arrears dipped 5% in Q2 2025, according to UK Finance, with 11,270 cases recorded — including 4,100 in the lightest arrears band, down 6% from the previous quarter.
The overall proportion of BTL mortgages in arrears stood at 0.58%. Meanwhile, 790 BTL mortgaged properties were repossessed during the quarter — 2% fewer than Q1 2025.
Commenting on the drop in arrears and possessions for both BTL and residential mortgages, Charles Roe, director of mortgages at UK Finance, said: “Arrears are continuing to fall across both homeowner and BTL mortgages, reflecting resilience in the market.
“The proportion of mortgages in arrears also remains below long-term averages, even amid the current economic uncertainty.”
However, while the numbers may appear promising to some, not all are convinced.
Mel Spencer is the growth director at Target Group, an outsourcer firm specialising in mortgage and loan originations and payments, including for BTL lenders. She believed that while the UK Finance numbers were encouraging, they were only short-term.
“UK Finance’s Q2 2025 data paints an encouraging picture for the BTL sector. In the short term, landlords — and by extension their BTL lenders — are being supported by decent yields and high rents.
“But declines in landlord arrears and possessions are in no way sustainable in the medium to long term.”
Mel warned that the UK’s economic slowdown was expected to stretch through 2025 and likely into 2026, with uncertainty in global trade posing an added risk to business investment.
She predicted that previous government U-turns on welfare and winter fuel payment cuts could cause tax hikes in the upcoming Budget, with potential longer-term tax increases coming over the remainder of the decade to meet spending demands and slower economic growth.
“That will hit growth and jobs yet further. The weak labour market is yet to feed through into arrears and possession data,” cautioned Mel.
Hugo Davies, chief capital officer and managing director of mortgages at LendInvest, saw the UK Finance numbers as unsurprising, but agreed the future remained uncertain.
“It’s unsurprising to see possessions and arrears marginally down on the last quarter, given there has been real income progress and landlord borrowing costs have come down, both supporting tenant affordability.
“That said, we’re still in the dark regarding the Autumn Budget and the potential for a further tax raid on landlords, in addition to upside inflationary risk that could stop the MPC’s rate-easing path in its tracks.
“Lower-income households, who are more likely to be renting, will be more sensitive to rising rents as a consequence of these shocks, in addition to the unintended impact of the Renters’ Rights Bill.”
Mel too predicted that the Renters’ Rights Bill, combined with stricter EPC requirements, could increase compliance costs and reduce flexibility, potentially increasing arrears and possessions if properties become financially unviable.
She suggested that lenders had a role in creating early prevention strategies and engaging with borrowers to prevent escalation, offering tailored forbearance options, portfolio reviews, and digital servicing tools.
Brokers also played a key role, she added. “Brokers serve as the critical first line of defence in BTL lending, advising landlords on originations that match their risk profiles and steering clear of the arrears pitfalls.
“By advising on structure — whether to operate as an individual or a limited company — they can also help landlords navigate some major tax implications which could impact their ability to pay the mortgage down the line.
“And they can educate landlords on regulation, demystifying upcoming changes to help landlords prepare — reducing the risk of non-compliance and financial strain.”
Hugo also saw an integral role for brokers and lenders: “Intelligent advice from brokers, smart products from lenders, and the right corporate structures remain the bedrock of successful PRS strategies that support sustainable rents and the long-term health of the sector.”
However, Mel noted that the UK jobs market was losing steam, with the number of workers on company payrolls having fallen by 8,000 in August 2025 — the seventh consecutive month of declines — and an estimated 10,000 drop in vacancies over the quarter to August.
“The cooling labour market and the ongoing decline in vacancies will inevitably hit tenants’ ability to pay the rent and, by extension, landlords’ ability to pay their BTL mortgages. There’s only so much brokers can do in those circumstances.”
