Arrears on Pepper Advantage’s portfolio of buy-to-let mortgages continued to rise, latest data reveals.
The arrears rate on the buy-to-let portfolio increased almost 10% quarter on quarter.
It grew by 9.7% during the three months from July to September this year, compared to the previous quarter.
It follows significant increases in the first and second quarters of this year, Pepper Advantage said.
New buy-to-let mortgages
The global credit intelligence company said the number of new buy-to-let mortgages dropped 1.6% in the third quarter compared to the second quarter.
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A more significant drop in the number of new buy-to-let mortgages is seen during the past year.
Numbers have dropped by a massive 10.6% compared to this time last year.
There are concerns about landlords seeking to exit the market amid growing regulatory and tax pressures.
These pressures include the abolition of Section 21 and the increase in the stamp duty surcharge on buy-to-let properties from 3% to 5%.
Aaron Milburn, UK managing director of Pepper Advantage, said: “Looking to 2025, the data also shows headwinds clearly remain and the signs of structural challenges in the buy-to-let market are cause for concern with a knock-on effect for renters.
“Private landlords with buy-to-let mortgages continue to exit the market as they grabble with the entrenched higher rate environment and the potential for additional taxes, increasing supply-side pressures and pushing up rental prices.
“Time will tell whether this divergence develops into a wider trend, but we’ll be following the data closely as we continue to support borrowers through difficult circumstances.”
Residential mortgage arrears
The increase in buy-to-let arrears is in contrast to the residential side of the business.
The arrears rate on the group’s portfolio of more than 100,000 residential properties continues to improve.
It dropped 0.8% in their third quarter compared to a 0.6% drop in the second quarter of this year.
The decrease in residential mortgages led to an improvement in the UK’s overall arrears rate.
The percentage of UK mortgages in arrears grew by only 0.1% in the third quarter of this year.
It is the lowest recorded level since the third quarter of 2022.
In the residential market, new originations in the third quarter dropped 7.6%.
It compares to a significant increase in the second quarter of this year, which grew a substantial 20.9% on the first quarter.
Despite falling originations, the outlook for the final quarter remains strong, according to Pepper Advantage.
It attributed falling interest rates and increased activity in the housing market leading to more demand from buyers.
Direct Debit Rejections
Meanwhile, the latest Direct Debit Rejections suggest the macroeconomic environment continues to weigh heavily on borrowers.
Direct Debit Rejections are a form of missed mortgage payment, which typically occurs due to insufficient funds when a direct debit is called. It is an early indicator of borrower stress.
The percentage of residential mortgages that experienced Direct Debit Rejections in the third quarter of this year grew 1.9% compared to the 0.4% growth seen in the second quarter.
Meanwhile, Direct Debit Rejections for buy-to-let borrowers grew 2.7% compared to the second quarter.
Regional data shows declining rates across large parts of Britain.
While overall rates of arrears have declined, the rate of decline varies across regions.
Greater London recorded its lowest growth rate since 2021, with only 0.4%, compared to growth of 6% in the second quarter.
The South West region saw a notable decline in the arrears rate, registering a decline of 1.5% during the third quarter, the first decline for this region since 2022.
North East, North West, Scotland, and Yorkshire and Humberside all saw rates of arrears dropping in the third quarter compared to the second quarter.
The West Midlands recorded an arrears growth rate of just 0.1% in Q3.
Milburn added: “Our latest data shows that 2024 has been a year of improvement for the UK mortgage market.
“The overall arrears rate for residential mortgages appears to have plateaued, with some regions such as the South West recording a pronounced decline in the rate of arrears.
“Alongside the encouraging arrears data, the number of new originations remains solid, with falling interest rates starting to have an impact.”
