Reeves’s Proposed Cash ISA Limit Cut Sparks Concerns Over mortgage Rates & Lending
London,UK – Shadow Chancellor rachel Reeves’s plan to reduce the annual Cash ISA allowance to £12,000 is facing criticism from financial industry leaders,who warn it could lead to tighter lending conditions and potentially higher mortgage rates.The proposed change, announced amidst a backdrop of £103 billion deposited into ISAs in the 2023-24 tax year, has ignited debate over its potential impact on savers, borrowers, and the building society sector.
The Building Societies Association (BSA) expressed disappointment with the proposed cut. Chief Executive Robin Fieth stated a reduction to £12,000 “will not encourage more people to invest but will add unneeded complexity, notably around Isa transfers, and risks damaging the overall Isa brand. This may also deter people from saving and investing.”
Concerns are particularly acute within the building society ecosystem. Tim Bowen,former chief executive of Penrith building society and now CEO of financial technology company Mutual Vision,argued the move “would not just be a backward step for UK savers but the whole building society ecosystem.” He elaborated, “Less money being saved means there will be less to lend, which is bad news for borrowers and the property market as a whole.”
Building societies heavily rely on cash deposits to fund loans, particularly those catering to niche markets like shared ownership mortgages and borrowers with complex financial situations or adverse credit histories. Craig Fish, Director of Lodestone Mortgages, echoed these concerns, stating, “Slash cash Isa allowances and you reduce the very savings pots these lenders depend on. less money in means less money out, and that can only lead one way: tighter lending and potentially higher rates.” He warned the change “risks choking off competition and putting pressure on already sensitive parts of the property market.”
Though, not all experts agree on the negative consequences.Greg Davies of Oxford Risk,a behavioural finance specialist,suggested the issue lies with the Cash ISA product itself.He argued, “By combining emotional comfort with a tax benefit, people are rewarded for holding on to cash, even when investing that money would serve their long-term needs more effectively.” Davies estimates the average investor loses 2-3% annually by holding excessive cash.
A recent survey by Yorkshire building society revealed the potential impact on savers, with almost half of polled Cash ISA holders stating a reduction to the £20,000 allowance “would impact them moderately or severely.”
Experts also question whether limiting Cash ISAs will necessarily drive investment into the stock market.Rachael Griffin, a tax and financial planning expert at Quilter, believes funds may instead flow into choice “safe options” like premium bonds, rather than stocks and shares ISAs.
