UK Finance has warned the government that higher taxes on banks could push up the cost of mortgages and reduce banks’ ability to lend.

In its submission ahead of the October Budget, the banking industry body said further increases in bank-specific taxes could make the UK less attractive to international banks and could ultimately affect the cost of borrowing for households.

UK Finance also warned against using changes to the way banks are paid interest on their reserves at the Bank of England as another way of raising money from the sector.

It said changes to the current system could affect the pricing of mortgages and savings accounts, as well as banks’ ability to lend and invest.

The organisation called on the government to keep the existing tax arrangements for banks and instead set out a long-term plan to make the UK’s financial sector more competitive internationally.

UK Finance said a typical corporate and investment bank operating in London faces a total tax rate of 46.5%. That compares with 42.2% in Amsterdam, 39.1% in Frankfurt and 27.9% in New York, according to figures in its submission.

It warned that increasing bank taxes further could widen this gap and make London less attractive as a global financial centre.

The submission also sets out a series of proposals for housing, arguing that banks and other financial firms should play a central role in the government’s plans to increase homeownership and housebuilding.

UK Finance said the number of first-time buyers helped onto the housing ladder rose to 391,000 in 2025, up from 332,000 in 2024.

The group also called for the government to move ahead with its proposed First-Time Buyer ISA, which would help people save for a deposit.

UK Finance said financial services should also be more closely involved in efforts to make buying and selling homes faster and cheaper.

It backed measures including better sharing of property information and improved links between payment systems.

The banking industry body also wants the government to use public finance to attract more private investment into housing and regeneration projects.

UK Finance recorded £176.6bn of new residential house-purchase lending in 2025. Around 83% of that lending, or £146.1bn, was outside Greater London.

UK Finance also called for a long-term framework to encourage households to make their homes more energy efficient.

It said this should combine government support and incentives with private lending, while ensuring consumers are protected.

The organisation said banks were already working with the government on its Warm Homes Plan and called for the proposed Warm Homes Agency to be established urgently.

It said a stronger market for home improvements could create growth while helping households reduce energy use and prepare for climate-related risks.

UK Finance also called for a new partnership between government and the financial sector to identify opportunities for investment across the UK, alongside measures to improve access to finance for small businesses.

The organisation said a profitable banking sector was important because it allowed banks to build capital, attract investment and continue lending during economic downturns.