Higher stamp duty linked to sharp fall in mortgage lending, FCA data shows

The value of new mortgages handed out by banks plunged by almost a quarter in the quarter following the April 1 changes to stamp duty, Financial Conduct Authority data shows, a slump that property experts say has cooled activity across the market.

Gross advances for mortgages — the value of loans paid to homebuyers — fell from £77.6 billion in the three months to March to £58.8 billion in the three months to June, marking the lowest level since the first quarter of 2024, according to the FCA figures. Analysts and mortgage brokers attributed much of the drop to higher upfront taxes that came into effect in April.

The FCA data also showed forward-looking indicators diverging from the immediate lending picture: the value of new mortgage commitments — loans agreed by lenders but not yet paid out — rose 14.6% to £78.2 billion compared with the previous three months. Mortgage industry figures said that uptick suggested demand remained among some buyer groups even as immediate lending fell.

"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 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."

Simon Gammon, managing partner at Knight Frank Finance, said lenders were focusing on first‑time buyers to gain market share. "Mortgage lending remains subdued, with gross advances down sharply in the last quarter — but the forward‑looking indicators tell a different story," he said.

The stamp duty changes that took effect on April 1 temporarily lowered the thresholds that had been in place since 2022. The nil rate for most home buyers fell to £125,000 from £250,000, meaning a purchaser of a £250,000 property would face about £2,500 more in upfront tax than under the previous thresholds. First‑time buyer relief was also curtailed: the threshold above which first‑time buyers pay stamp duty was reduced to £300,000 from £425,000, leading to substantially higher bills for those buying in pricier areas.

First‑time buyers in London, where average prices are higher, were particularly affected. Someone buying a property at the capital’s average price of £564,000 would see a stamp duty bill rise from about £6,950 under the earlier thresholds to roughly £18,200 after the April change, industry calculations show.

Market participants warned that a separate source of uncertainty could further restrain activity. There have been media reports that the government, if changed at the next election, or incoming administrations could propose further property tax changes in the Autumn Budget. Brokers said talk of new measures had begun to make some would‑be sellers and buyers postpone decisions until a clearer policy picture emerges.

"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 was a risk the market could stall again in the near term.

The FCA figures, compiled ahead of much of the recent Budget speculation, highlighted a market adjusting to a mix of higher transaction costs and still‑elevated interest rates. While commitments data suggested demand among certain cohorts, the near‑term outlook will hinge on taxation policy clarity, mortgage pricing and broader economic conditions as the Autumn Budget approaches in late November.