Reeves’s plan to cut cash Isa limit could raise mortgage rates, say finance bosses

9 hours ago7 min read5 comments

The financial world is bracing for impact as Chancellor Rachel Reeves prepares to unveil a budget that could fundamentally reshape the UK's savings landscape and, in a consequential ripple effect, potentially drive up the cost of mortgages. The central pillar of this fiscal shift is an anticipated 40% reduction in the annual cash Isa allowance, slashing the tax-efficient savings threshold from £20,000 to a mere £12,000.This move, while ostensibly a measure to redirect capital, has sent a shockwave of concern through the boardrooms of Britain's building societies and high street banks. Finance executives are sounding the alarm, arguing that such a policy directly disincentivizes the very act of saving.The mechanism at play is one of classic macro-economics: building societies rely heavily on the steady inflow of retail deposits from products like cash Isas to fund their mortgage lending operations. When this crucial reservoir of domestic capital shrinks, these institutions are forced to seek more expensive forms of wholesale funding from international money markets to maintain their loan books.This increased cost of capital does not simply vanish; it is inevitably passed on to the consumer in the form of higher mortgage rates. This creates a perilous scenario for a housing market already teetering on the edge of affordability, potentially cooling demand and placing homeownership further out of reach for a generation of aspiring buyers.The timing is particularly precarious, given the current economic climate of persistent inflation and the Bank of England's own delicate balancing act with interest rates. A government-induced rise in mortgage costs could inadvertently complicate the central bank's efforts to stabilize the economy.Furthermore, this policy represents a significant departure from the long-standing, cross-party consensus that has championed tax-advantaged savings as a cornerstone of personal financial resilience. It echoes, in some respects, the market volatility seen during the Liz Truss mini-budget, where unfunded fiscal policy spooked lenders and sent borrowing costs soaring, albeit through a different channel.The building society sector, a bastion of mutual ownership and regional lending, would feel this pinch most acutely, as their business model is intrinsically linked to the savings habits of their member-customers. This is not merely a technical adjustment for spreadsheet jockeys; it is a decision with profound social and economic implications, potentially undermining financial security for millions while simultaneously making the dream of home ownership more expensive. The ultimate cost of this £8,000 reduction in the Isa limit may not be borne by the Treasury's balance sheet, but by every family seeking a new mortgage or renewal in the months to come.

#lead focus news

#Rachel Reeves

#budget

#cash ISA

#mortgage rates

#savings

#building societies

#UK finance

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