The Chancellor has been warned that cutting Cash ISA limits could push up mortgage costs across the UK.
The warnings follow reports that the Government is considering reducing the annual Cash ISA allowance from £20,000 to just £4,000.
The chief executives of Leeds Building Society and Yorkshire Building Society have both said the move would impact savers and the housing market.
Richard Fearon of Leeds Building Society said the move would be “unlikely to achieve” the objectives of those advocating for the change.
Susan Allen of Yorkshire Building Society called it a “retrograde step” that would impact savers and the housing market.
Chancellor Rachel Reeves is reportedly considering the change to encourage more investment in stocks and shares ISAs, which also have a £20,000 ceiling.
Reeves has confirmed she intends to “create more of a culture in the UK of retail investing like what you have in the United States”.
Rachel Reeves cash isa tax raid could push mortgage prices up
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She met with City fund managers last month who urged her to create a single ISA product with cash limited to £4,000.
Government statistics show that nearly two-thirds of the nation’s 12.4 million adult ISA accounts are cash ones.
Reeves has said she “wants to get the balance right” between cash savings and investment in stocks and shares.
Fearon warned that reducing Cash ISA funding would have serious consequences for borrowers. He said: “We use it to fuel our mortgage lending. If you significantly reduce that funding, mortgage rates would become more expensive for borrowers.”
He added that hundreds of customers had contacted Leeds Building Society with concerns about potential changes and explained “most of our customers are pensioners who can’t necessarily take that long-term approach.”
He believes reducing the allowance would lead to “bigger tax bills and higher repayments for mortgage customers” rather than creating greater investment in the UK.
Allen said: “Many people do not have the risk appetite to put their capital at risk. As a society, we need to be encouraging people to save and for many people starting with cash is where they will start.”
Research by Yorkshire Building Society found 35 per cent of savers keep money in a Cash ISA compared to just 16 per cent in stocks and shares ISAs.
She warned: “Cash ISAs contribute to the funding we then use to help people get on the housing ladder. Anything that diminishes the cash building societies hold will have an impact on the housing market.”
Building societies account for about 40 per cent of the Cash ISA market, according to Fearon.
Leeds Building Society’s financial results for 2024 revealed that new ISA account openings were four times higher last year than in 2020.
ISA balances at the society have reached £15billion. A survey of Leeds Building Society members found only seven per cent intended to open a stocks and shares ISA this year.
Fearon criticised fund managers who claim money in Cash ISAs is dormant, calling this “naïve at best, or deliberate misinformation at worst”.
Households have been forced to deal with rising mortgage repayments and being priced out the housing market GETTY
Savers currently have nearly £300bn in Cash ISA accounts across the UK. The Building Societies Association has also warned Reeves that scaling back the tax break could cause mortgage rates to rise.
The trade body suggested such changes might even lead to a housing market downturn.
Directors at Skipton Building Society and Nationwide have similarly urged the Chancellor to protect the savings initiative. These concerns form part of a broader industry pushback against the proposed changes.
At a time when the cost of living continues to impact millions of people, Fearon noted: “The last thing that people need is to have greater pressure on their mortgage bills.”