Darlington Building Society has issued a stark warning that expected government changes to Cash ISA allowances could disrupt mortgage funding and deliver a blow to low-income savers and the broader UK housing market.

The Chancellor is widely expected to announce a cut to the tax-free savings limit for Cash ISAs during her forthcoming Mansion House speech.

But Andrew Craddock (pictured), chief executive at Darlington Building Society, has called on the government to rethink the proposal, arguing it risks undermining financial resilience for savers and reducing access to mortgage finance for homebuyers.

As a mutual lender, Darlington relies on customer deposits – including Cash ISAs – to fund its mortgage book. A significant fall in those deposits, Craddock warned, would restrict how much building societies can lend, with a potential knock-on effect across the property sector.

“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,” Craddock said.

His comments follow recent data showing that building societies and mutual-owned banks accounted for 52% of total mortgage market growth in the six months to March 2025, reflecting their growing importance in supporting borrowers underserved by mainstream lenders.

“By massively reducing this key source of funding,” Craddock said, “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.”

LOWER INCOME HOUSEHOLDS

The warning also highlights the disproportionate impact such a move would have on lower income households. Government statistics show that 47% of all Cash ISAs are held by individuals earning less than £20,000 per year, a demographic that tends to favour secure, tax-free savings over higher-risk investment alternatives.

“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 said.

“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.”

With speculation around the ISA allowance gathering pace ahead of the Chancellor’s Mansion House speech, Craddock has urged policymakers to consider the wider implications of any reform.

“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 said.

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