Rachel Reeves warned cash ISA reforms will hike mortgage costs
Rachel Reeves’ plans to cut the cash ISA limit have been blasted by the bosses of Britain’s top building societies over fears they will hike borrowing costs.
The Chancellor has been warned her proposals to slash savers’ annual cash ISA allowance from the existing tax-free threshold will drive up costs for homeowners and businesses.
Concerns have spiked that cutting tax-free savings allowances could lead to fewer customer deposits, which building societies rely on to fund home loans. This would drain the pool of low-cost funding available to mutuals, making it harder and more expensive for them to offer mortgages.
A draft letter being circulated by the Building Society Association (BSA) warns savers could be deterred by reforms and Labour’s housebuilding ambitions will be derailed.
“Cash ISAs are a cornerstone of personal savings for millions across the UK, helping people from all walks of life to build financial resilience and achieve their savings goals,” the letter, seen by Sky News, said.
The BSA argued the funds deposited in cash ISAs “support lending, helping to keep mortgages and loans affordable and accessible”.
It added cutting the limit would make these funds “more scarce” and have a “knock-on effect of making loans to households and businesses more expensive and harder to come by”
Changes could ‘choke’ mortgage availability
Almost £100bn is estimated to be held in cash ISAs by individuals with £20,000 or more who do not invest, according to AJ Bell. The average stocks and shares ISA account is worth over £65,000 while a typical cash ISA account holds under £13,500.
Reeves is poised to unveil the changes to cash ISAs at her Mansion House speech next week, with plans to cut the existing £20,000 tax-free threshold to as little as £5,000.
The move has divided the City with its supporters arguing the changes would not only improve savers’ returns in the long-term but also provide capital-starved firms with a needed boost of investment.
But the BSA joins critics in arguing that slashing the tax-free cash ISA allowance would have drastic effects on borrowing, particularly mortgages.
Darlington Building Society said the changes would “would be effectively choking mortgage availability”.
The BSA’s draft letter called on the Chancellor to support “a long-term consumer awareness and information campaign to educate people about the benefits of investing, alongside maintaining strong support for saving”.
“We therefore urge you to affirm your support for Cash ISAs by maintaining the current £20,000 limit,” the trade body said.
Others have been more supportive of the plans. Charles Hall, head of research at Peel Hunt, told Morning Wire: “It makes sense for the Chancellor to address the limits on Cash ISAs to encourage savers to invest in products with higher returns.
“We should also ensure that taxpayers’ money is focused on encouraging investment in UK companies.”