It emerged this week the Chancellor Rachel Reeves was considering reducing the Cash ISA allowance in the next Budget in a bid to get more people to invest their money in the markets.
As it currently stands, savers can choose how much of their £20,000 tax-free ISA allowance they put into cash or stocks and shares ISAs. If they want to put their entire allowance in cash – they can.
There is, however, a £4,000 limit on the Lifetime ISA which can be used as a savings account for deposit on your first home or building a pension pot.
Under the plans being considered by the Chancellor the amount savers could invest in cash will be capped at £10,000 meaning any further money they wish to invest in ISAs must be put into stocks and shares.
It’s not the first time Rachel Reeves has looked at reducing cash ISA limits. In July she shelved plans to reduce it to £4,000 following a backlash.
Now, it would appear these proposals are back on the table. Although the limit is more generous than in the previous plans, savings providers are concerned this will have a negative impact on savers.
And there are fears it could also impact mortgages for people who borrow from a building society.
Charlotte Harrison, CEO home financing at the Skipton Group explained: “Building societies, which fund over a third of all first-time buyer mortgages, rely on retail deposits like cash ISAs to fund their lending. If ISA inflows fall, the cost of funding is likely to rise, and that means mortgages could become both more expensive and harder to access.
“That risks derailing the government’s own target of building 1.5 million homes, a goal that depends on buyers being able to secure affordable mortgage finance.
“At Skipton we back getting more people to invest, absolutely. But not by penalising savers who want low-risk, flexible options. Cash ISAs work. Undermining them doesn’t.”
The Building Societies Association (BSA) which represents all the UK’s building societies also hit out at the Chancellor’s plans ahead of the Budget on 26 November.
They were also concerned about how the plans might inhibit savers – many of whom could be first-time buyers. Indeed, it said, cash ISAs meet ‘real and practical needs’ for people, building financial resilience and many use them for building a house deposit.
But they also help supply the essential funding the building societies need to provide mortgages.
BSA analysis suggested a cut in the annual Cash ISA limit from £20,000 to £5,000 could lead to 17,000 fewer mortgage loans.
Andrew Gall, head of savings at the BSA said: “We are very concerned that the Chancellor is still considering cuts to the Cash ISA limits.
“We support efforts to help more people to invest and grow their wealth, especially in the UK, but cutting the Cash ISA limit simply won’t achieve this.
“Instead it would undermine one of Britain’s most successful savings products and a stepping stone that has helped millions to build financial resilience and confidence to invest for their future.
“We call on the Chancellor to listen to the millions of people who rely on Cash ISAs to save safely and flexibly. Rather than restricting their options, we should build on what is already working and help people to make informed choices about their finances.”
Contact one of our highly experienced mortgage advisors today on 0121 500 6316 to discuss your mortgage needs.
