Chancellor is expected to announce a 40% reduction in tax-sheltered savings limits, threatening to shrink the lending capital available to mortgage providers
The mortgage industry faces a potential funding crisis following reports the Chancellor will announce plans to slash cash Individual Savings Account limits, raising concerns that reduced deposits could lead to higher borrowing costs and tighter lending conditions.
Rachel Reeves's expected budget announcement to cut the annual cash ISA allowance from £20,000 to £12,000 poses a direct threat to the deposit base that building societies and smaller lenders depend upon to fund mortgages, industry figures have warned.
Cash ISAs have become a critical source of capital for mortgage lenders, particularly those serving first-time buyers and borrowers with more complex financial circumstances. Slash cash Isa allowances and you reduce the very savings pots these lenders depend on, Craig Fish, director of broker firm Lodestone Mortgages, told The Guardian.
“Less money in means less money out, and that can only lead one way: tighter lending and potentially higher rates. This risks choking off competition and putting pressure on already sensitive parts of the property market.”
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Nationwide building society has already cautioned that the reduction will cut mortgage availability for first-time buyers. The warning underscores a broader market concern: fewer savers contributing to tax-advantaged accounts means less capital available for lending.
Tim Bowen, former chief executive of Penrith building society and now head of fintech firm Mutual Vision, warned of deeper structural damage. Less money being saved means there will be less to lend, which is bad news for borrowers and the property market as a whole.
The Building Societies Association also expressed disappointment at the move, citing both practical and market concerns. A cut to £12,000 will not encourage more people to invest but will add unnecessary complexity, particularly around Isa transfers, and risks damaging the overall Isa brand.
Recent data highlights the scale of the market at stake. Almost 10 million cash ISAs were opened in the 2023-24 tax year alone, with a record £103 billion deposited into the accounts. The figures suggest strong demand for tax-efficient saving mechanisms among ordinary households.
For mortgage brokers, the implications are twofold: lenders facing capital constraints will likely tighten lending criteria and potentially increase mortgage rates to compensate for reduced deposit availability. Brokers in the specialist lending sector, which serves those with difficult credit histories or complex financial profiles, may face particularly acute pressures.
