Higher stamp duty and Budget tax rumours coincide with sharp slump in mortgage lending

Mortgage lending in the United Kingdom fell sharply in the second quarter of 2025 after changes to stamp duty thresholds took effect, and recent rumours about further property tax changes ahead of the Autumn Budget have added fresh uncertainty that market participants say could stall activity further.

Data from the Financial Conduct Authority show the value of new mortgage advances dropped 24.2% between April and June compared with January–March, falling from £77.6 billion to £58.8 billion — the lowest quarterly level since the first three months of 2024. The FCA’s figures cover gross advances made by lenders and represent completed loans paid out to borrowers.

The slump followed tax changes that came into force on April 1, which lowered the temporary stamp duty thresholds established in 2022. Home movers began paying stamp duty on properties costing more than £125,000, down from the previous threshold of £250,000. First-time buyer relief, which had previously exempted purchases up to higher limits, has also been reduced: first-time buyers started paying stamp duty on homes costing above £425,000 in April, and that threshold has since been changed to £300,000.

Industry specialists said the prospect of higher upfront costs prompted many buyers to accelerate purchases before the rule change, lifting activity in early 2025 and then leaving a gap when the new rules took effect. "The start of 2025 had seen a marked lift in lending activity as people rushed purchases before the shift in the tax rules saw their stamp duty bill rise substantially overnight," said Karen Noye, mortgage expert at wealth manager Quilter. "However, with interest rates still high and stamp duty costs inflated, it came as no real surprise that there was such a downward shift in the months that followed."

Despite the fall in gross advances, forward-looking indicators show some resilience. The value of new mortgage commitments — loans agreed with lenders but not yet drawn down — rose 14.6% to £78.2 billion compared with the prior quarter. Simon Gammon, managing partner at Knight Frank Finance, said lenders were focusing on the first-time buyer segment to win market share and that commitments point to future activity even as completions fell.

The FCA data were collected before recent media reports and industry speculation that the Labour government could propose further property tax changes in the Autumn Budget, scheduled for late November. Property agents and mortgage advisers say the rumours have already slowed listings and buyer enquiries, as would-be sellers and purchasers await clarity on tax policy.

"Budget rumours are also adding to the uncertainty and talk of new property-related taxes could result in would-be sellers putting their plans on hold until they have a clearer picture," Noye said, adding there is a risk the market stalls further in the near term.

Analysts point to persistent macroeconomic factors that are also influencing lending. Bank of England interest rates remain elevated compared with the low-rate environment earlier in the decade, reducing households’ borrowing capacity and constraining demand. Higher rates have also increased costs for buy-to-let landlords and for homeowners approaching the end of fixed-rate deals, prompting advisers to encourage borrowers to review options early.

Market participants urged borrowers who need new financing or are remortgaging to compare rates, consult brokers and, where appropriate, secure deals in advance. Lenders’ emphasis on the first-time buyer market could create more targeted products for that cohort, but the overall value of advances will be closely watched in the run-up to the Budget.

The coming weeks and the content of the Autumn Budget will be decisive for whether the housing market regains momentum before year-end or faces an extended pause as buyers and sellers wait for policy clarity.