Cash ISA changes could impact mortgage funding, building societies warn

Darlington Building Society has cautioned that the government’s anticipated cut to the tax-free cash ISA allowance could have wide-reaching consequences for mortgage funding, savers, the housing market and the UK economy.

According to reports, the Chancellor is expected to announce a reduction in the cash ISA allowance during her Mansion House speech later this month. 

Andrew Craddock, chief executive at Darlington Building Society, has urged the government to reconsider the move, highlighting the key role that cash ISAs play in both financial resilience and mortgage lending.

As a mutual lender, Darlington uses member deposits – including cash ISAs – to fund its mortgage lending. A fall in ISA deposits would directly impact how much building societies are able to lend.

Building societies and mutual-owned banks were responsible for 52% of total mortgage market growth in the six months to March 2025, underlining the important role the sector plays in supporting borrowers and housing activity.

Craddock said: “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.

“By massively reducing this key source of funding, 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. This can include the self-employed, older borrowers or even those looking to build their own dream home.”

Almost half of all cash ISAs (47%) are held by individuals earning less than £20,000 per year, meaning any reduction in the allowance would disproportionately affect lower income savers.

Craddock commented: “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.

“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.”

Craddock concluded: “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.

“This would directly impact the mortgage market, with reverberations across the housing market.”