MORTGAGE bills could jump for millions of households if plans to shake up cash ISAs go ahead, UK’s biggest lenders have warned.
Yorkshire, Coventry and Skipton Building Society have all said costs could rise if the cash ISA tax-free allowance is slashed.
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Rachel Reeves is reportedly eyeing cutting the maximum amount savers can add into a cash ISA without being taxed from £20,000 to £5,000.
At the moment, you can stash away £20,000 a year in ISA savings accounts without paying any tax on interest or earnings.
But all three major lenders have cautioned this could have a knock-on effect on what they earn from customers and lead to mortgage bills rising for households, The Telegraph reports.
Chris Irwin, Yorkshire Building Society’s head of savings, said: “Reducing Isa deposits could make mortgages more expensive and less available.
“Cash Isas make up 39% of all building societies’ retail savings balances.”
Mr Irwin also said ISA cuts could hamper Labour’s push to build 1.5million homes by the end of its five-year term.
Skipton Building Society, the UK’s fourth largest building society, said it had warned Ms Reeves that her plans risk “directly undermining the Government’s own target of building 1.5m new homes”.
Its chief executive, Charlotte Harrison, added: “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.”
Meanwhile, Jeremy Cox, head of strategy at Coventry Building Society, said plans to shake up the cash ISA market could affect building societies’ “ability to support mortgage lending and potentially leading to higher cost of mortgages and a fall in housing market activity”.
Chancellor plans to cut cash ISA allowances
The warning from the lenders comes as the Chancellor reportedly prepares to reveal plans to cut the cash ISA limit at her Mansion House speech on July 15, as first reported by The Financial Times.
Ms Reeves said last month she had no plans to reduce the total amount that can be saved into ISAs each year.
But City bosses have been urging her to reduce the cash ISA allowance to encourage savers to invest their money in stocks instead.
It comes as the government tackles a giant budget deficit – in the 2023/24 financial year it was £131billion – equivalent to 4.8% of GDP.
A government deficit is when a government’s total spending exceeds the revenue it brings in.
The annual cash ISA tax-free allowance was set at £20,000 in the 2017/18 tax year and has not changed since.
A Whitehall source familiar with discussions told The FT that negotiations about what level the Cash ISA limit could be set at are st ill ongoing.
Cash ISAs the most popular of the four different ISA accounts, with roughly 12.4million holding one.
A record £49.8billion was saved into them last year.
How much any changes to the cash ISA allowance will affect you depends on how much you usually add into yours.
For example, if you only add £4,000 into yours every year, the planned changes won’t make a difference to you.
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The expected change to ISA allowances is a contentious one, potentially cutting the amount Brits can save tax-free each year.
While details are yet to be confirmed, there has been speculation for months that Chancellor Rachel Reeves will shake up the rules.
The hope is that limiting cash ISAs will nudge people into investing instead, giving the London stock market a much-needed boost.
However, some experts say it will do little to encourage households to invest because it will not change their appetite for risk.
Cutting the allowance means millions would face a choice between putting money into taxable savings accounts or investing in riskier stocks.
As noted, a recent survey by stockbroker AJ Bell found that only one in five savers would switch to the stock market if their limits were cut.
Over half would simply put their money into a taxable savings account instead.
Newcastle Building Society has also warned that there is a “misguided” assumption that Cash ISA savers could just as easily and comfortably invest in the stock market.
The Treasury has to get the balance right.
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Cash ISAs are so popular because they offer savers a guarantee of not losing any money.
This is in comparison to Stocks and Shares ISAs which can fluctuate in value based on your investments.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said a mixed portfolio of ISAs will see you get the best bang for your buck though.
You can add money into multiple ISAs at one time, so long as you don’t breach the current £20,000 annual allowance.
It’s also worth shopping around for the best deals too, Sarah said.
She said: “How you divide your annual allowance between cash and stocks and shares will depend on your time horizon, risk profile and objectives, but most people should consider a mix of both.
“If you’re planning a cash ISA, don’t just go with your usual bank, because online banks and savings platforms are competing hard for your money at the moment, so it really pays to shop around and consider all the alternatives.”
If you are worried about opening a Stocks and Shares ISA, research is key as you don’t want to invest badly.
Websites like AJ Bell or MoneySavingExpert.com offer top tips on how best to go about opening one.
In any case, the returns you get on Stocks and Shares ISAs over the longer term compared to Cash ISAs are usually much bigger.
Just bear in mind with investing there is always a risk attached.
Myron Jobson, from interactive investor, said: “Those willing to take on some investment risk could see better long-term returns through a stocks and shares ISA.
“While the value of investments can go up and down, history shows that stock markets tend to outperform cash over extended periods.”
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