The number of homeowner mortgages in arrears of 2.5% or more of the outstanding balance dropped by 1% quarter-on-quarter to 77,940, UK Finance has revealed.

The UK banking and financial services trade association’s latest data showed that, in the second quarter, there were 27,1000 homeowner mortgages in the lightest arrears band, between 2.5% and 5% of the outstanding balance. This again represents a 1% quarter-on-quarter reduction.

UK Finance found that there were 8,390 buy-to-let (BTL) mortgages in arrears of 2.5% or more, marking a 6% reduction, while BTL mortgages in arrears between 2.5% and 5% reached 2,980, falling by 7% quarter-on-quarter.

Across the period, mortgages in arrears account for 0.89% of all homeowner mortgages outstanding, and 0.44% of all BTL mortgages outstanding.

Growth director at Target Group, Melanie Spencer, said the latest fall in mortgage arrears suggests that while households have faced financial pressures in recent years, mortgage borrowers are "managing to stay in the black".

She added: "Meanwhile, lenders continue to ensure that any mortgage distress remains contained, highlighting their good work on early intervention and forbearance. While positive, it’s important to view these latest figures against an economic backdrop that remains complex and difficult to predict.

"The UK economy has so far managed to fare reasonably well in light of the conflict in the Middle East – as evidenced once again by this morning’s resilient GDP data. The likes of energy price pressures and shipping disruption pose a real threat to inflation, interest rate expectations and to mortgage pricing. Even with the base rate remaining unchanged, we have seen movements in swap rates and lender funding costs influence the rates available to borrowers – a picture that could yet move further and affect those approaching the end of fixed-rate deals."

Divisional director at Spicerhaart Corporate Sales, David Miller, concluded: "It’s fantastic to see the number of possessions decline in the quarter. Given what our data is telling us, I would confidently predict that the majority of these cases are leasehold properties – in particular, leasehold flats.

"They make up over half of the properties we current manage as soaring service charges and ground rents leave many borrowers with limited options and continue to force the hand of lenders. Otherwise as the data shows, possession does remain that last resort, as many lenders look to explore assisted voluntary sales to deliver a positive outcome for all sides."

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