04-07-2025
Isa allowance cut could mean it is harder to get a mortgage
It could become harder to get a mortgage if the Government reduces the cash Isa allowance, a lender has warned.
It has been reported that the Chancellor, Rachel Reeves, is considering cutting the amount people can save tax-free.
They can currently put £20,000 in an Isa each tax year and not pay any tax on the interest, but this could potentially be reduced to £10,000 or even £4,000.
According to the reports, the Chancellor is expected to announce the policy during her Mansion House speech later this month.
But such a move could have a knock-on effect on the housing market, because banks and building societies use the money they hold in savings accounts such as Isas to fund customers' mortgages.
Andrew Craddock, chief executive at Darlington Building Society, is urging the government to reconsider the move.
He said that, if less is paid into Isas, this could reduce the number of home loans lenders are able to hand out and also potentially lead to higher rates.
This would particularly be the case if people invested more money instead of putting it in savings, as the Government is said to want to encourage them to do.
It would be a particular challenge for building societies, which are member-owned and therefore don't have as many options as banks for raising extra cash.
'Cash Isas underpin the UK mortgage market, providing a vital source of funding for building societies, which is lent out as mortgages to support the UK's housing market,' said Craddock.
'By making cash Isas less attractive, savers will likely explore other options, and it is difficult to see how building societies could sustain current lending levels if cash Isa deposits were significantly reduced.'
He added that the Government would be 'effectively choking mortgage availability for many first-time buyers and those who struggle to find a mortgage with mainstream high street lenders.'
Building societies and mutual-owned banks were responsible for 52 per cent of total mortgage market growth in the six months to March 2025, according to the Building Societies Association.
Allowance cut would hit poorer savers
A reduction in the Isa allowance could also disproportionately affect lower-income savers.
Almost half of all cash Isas are held by individuals earning less than £20,000 per year, the Building Societies Association has said.
'It is disappointing that the Government looks set to reduce the tax-free cash Isa allowance, at a time when we are all working hard to encourage people to build up their financial resilience,' Craddock added.
'Cash Isas are used by those who want to earn interest on their funds without taking the risk of investing and enjoy the benefits of tax-free saving whilst knowing exactly where their money is.
'Most typically, this is older savers and those on lower incomes.'
How to find a new mortgage
Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.
Buy-to-let landlords should also act as soon as they can.
Quick mortgage finder links with This is Money's partner L&C
> Mortgage rates calculator
> Find the right mortgage for you
What if I need to remortgage?
Borrowers should compare rates, speak to a mortgage broker and be prepared to act.
Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.
Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.
Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone.
What if I am buying a home?
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people's borrowing ability and buying power.
What about buy-to-let landlords
Buy-to-let landlords with interest-only mortgages will see a greater jump in monthly costs than homeowners on residential mortgages.
This makes remortgaging in plenty of time essential and our partner L&C can help with buy-to-let mortgages too.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to speak to a broker.
This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.
Interested in seeing today's best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.
If you're ready to find your next mortgage, why not use L&C's online Mortgage Finder. It will search 1,000's of deals from more than 90 different lenders to discover the best deal for you.
> Find your best mortgage deal with This is Money and L&C
Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you.
