Lowering the tax-free cash ISA allowance will have ramifications for mortgage pricing – impacting first-time buyers – and affect low-income savers.
The comments come as a report from The Financial Times suggests that Chancellor Rachel Reeves is considering decreasing the cash ISA to a lower level than the current £20,000 limit later this month.
Rumours had been circulating before the Spring Review, with reports at the time suggesting that the reforms would be delayed but were not off the table.
Robin Fieth, chief executive of the Building Societies Association (BSA), said it is “very disappointing to see further speculation that the Chancellor will announce cuts to cash ISAs limits” in the Mansion House speech later this month.
He continued: “It’s a myth that savings held in cash ISAs are sitting dormant and not supporting the UK economy. They are a vital source of funding for building societies, banks and other lenders who use these deposits to fund their mortgage lending and other loans to individuals, families and businesses. Without them, it’s likely that lending in the UK would get more expensive.
“Cutting cash ISAs won’t encourage people to invest and it won’t drive UK growth. It will make things difficult for hard-working families by making mortgages more expensive and savings more complex. It will make it harder for the Government to deliver on its pledges to build 1.5 million homes and to double the size of the mutual and co-operative economy.
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“Cash ISAs are a long-established cornerstone of the UK savings landscape. We support the calls to get more people investing, but only as long as that’s appropriate for them. Simply changing ISA limits is unlikely to result in more people investing, but it will hurt people who are responsibly saving for near-term goals, when investing is not appropriate. They are used for a wide range of purposes – from saving for a first home to managing finances in retirement. It will be people of more modest means who lose out – wealthier consumers will still get the benefit of the full allowance as they will be able to invest their funds.”
At the BSA conference earlier this year, Fieth said cash ISA reform could hinder growth in the sector.
The Labour government had made a manifesto commitment to double the size of the mutual’s sector.
Cash ISAs ‘underpin’ UK mortgage market
Andrew Craddock, chief executive at Darlington Building Society, who is due to step down next year, said: “Cash ISAs underpin the UK mortgage market, providing a vital source of funding for building societies, which is lent out as mortgages to support the UK’s housing market.”
He pointed to the fact that building societies and mutual-owned banks accounted for around 52% of total mortgage market growth in the six months to March 2025, underlying their importance to the mortgage market.
“By massively reducing this key source of funding, the government would be effectively choking mortgage availability for many first-time buyers and those who struggle to find a mortgage with mainstream high street lenders. This can include the self-employed, older borrowers or even those looking to build their own dream home,” he noted.
Figures suggest that cash ISA balances make up around 39% of building societies’ total savings balances on average, with building societies making up 40% of the total cash ISA market.
Craddock continued on to say that cash ISAs were vital for financial resilience, especially for lower earners, with almost half of all such accounts being held by individuals who earn less than £20,000 per year.
Consequently, changes to cash ISAs to reduce the amount that can be invested tax-free would “disproportionately affect lower income savers”.
Craddock said: “It is disappointing that the government looks set to reduce the tax-free cash ISA allowance, at a time when we are all working hard to encourage people to build up their financial resilience.
“Cash ISAs are used by those who want to earn interest on their funds without taking the risk of investing and enjoy the benefits of tax-free saving whilst knowing exactly where their money is. Most typically, this is older savers and those on lower incomes.”
Craddock concluded: “By making cash ISAs less attractive, savers will likely explore other options, and it is difficult to see how building societies could sustain current lending levels if cash ISA deposits were significantly reduced.
“This would directly impact the mortgage market, with reverberations across the housing market.”
The reforms to cash ISAs have also been criticised by Leeds Building Society’s chief executive previously, who said earlier this year that this would make mortgages more expensive and negatively impact mutuals.