Britain’s biggest building society has warned that cutting tax breaks on cash ISAs could reduce mortgage availability for first-time buyers, as debate intensifies over the future of the popular savings scheme.
The warning from Nationwide Building Society comes as City firms lobby Chancellor Rachel Reeves to scale back or eliminate tax breaks on cash ISAs, which are currently used by almost eight million savers annually.
Building societies rely on cash ISA deposits to fund mortgages, with nearly £300billion currently held in these tax-free accounts across more than 18 million savers.
Data from the Bank of England found that balances increased by £6.1bn in March 2024 with analysts expecting a similar uptake next month.
This marks the second-largest monthly increase during the 2023/24 tax year, surpassed only by April 2023’s £11.9bn rise.
The March surge significantly exceeded the tax year’s typical monthly increase of £3.1bn, recorded outside of March and April.
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Nationwide has issued a warning to the Chancellor
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A recent Paragon Bank’s survey reveals that while 67 per cent of savers invest at the start of the new tax year, nine per cent wait until the tax year’s end to make their deposits.
Tom Riley, the director of retail products at Nationwide Building Society, said: “Cash Isas not only help ordinary people save efficiently but enable us to fund our first-time buyer lending.”
He warned that “any limitations on lending would further impact those looking to get a foot on the housing ladder at a time when saving for a deposit remains a significant challenge.”
Other building societies have joined the opposition. Leeds Building Society’s Andy Moody cautioned there would be “a significant detrimental impact on mortgage lending” if cash Isa rules were undermined.
Savers can save tax-free with Individual Savings Accounts (Isas)
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Yorkshire Building Society’s Chris Irwin added that removing cash Isas would “have detrimental impacts on the financial wellbeing of many.”
City firms are pushing for a shift towards stock market investments, arguing this would better align with the government’s economic growth objectives.
The debate intensified after Emma Reynolds, the economic secretary to the Treasury, questioned the high levels of cash Isa savings during a House of Lords committee.
“Why do we have hundreds of billions of pounds in cash Isas?” Reynolds asked.
“What can we do together in parliament about trying to drive an investment culture that realises cash is not a good investment, especially in a high-inflation environment?”
Phoenix Group’s chief executive Andy Briggs offered a moderate stance, stating they “do not support the total removal of cash Isas” but urge consideration of tax policies supporting long-term growth.
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Isas are useful tools for those looking to save more than the personal savings allowance threshold without having to pay tax
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The Building Societies Association (BSA) has taken a firm stance against proposals to restrict cash Isas, with chief executive Robin Fieth writing directly to the Chancellor.
“I am writing to put on record how strongly we disagree with the recently reported calls from City firms to restrict cash Isas,” Fieth stated in his letter to Rachel Reeves.
The intervention follows Nationwide’s position as one of the UK’s biggest mortgage lenders, which reported “record” growth in home loans and deposits last November.
The building society had also announced last September it would allow first-time buyers to borrow up to six times their income.