Cash Isa raid ‘will drive up mortgage costs'
The Chancellor is considering lowering the amount of money that savers can put into a cash Isa without paying tax from the current rate of £20,000 to as low as £5,000.
Yorkshire, Coventry and Skipton building societies say the move could hinder their ability to raise the funds used to provide loans to homeowners.
Nearly one in three people in Britain have a cash Isa and some of £300bn savings is tapped by building societies to lend out to homeowners.
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 39pc of all building societies' retail savings balances. This provides a vital source of funding to allow us to offer more mortgages to those that need them.'
Yorkshire Building Society is the third largest building society in Britain, with almost £50bn worth of mortgages on its books and more than 3m customers. The mutually owned lender was formed in Huddersfield, West Yorkshire, in 1864.
Jeremy Cox, head of strategy at Coventry Building Society, said that Ms Reeves's plans could also have a wider impact on the UK's housing market.
He warned that Ms Reeves's plans will 'have consequences for the broader economy, affecting building societies' ability to support mortgage lending and potentially leading to higher cost of mortgages and a fall in housing market activity'.
Mr Irwin said the Isa cuts could also hinder Labour's housebuilding push, through which it aims to build 1.5m new homes by the end of its first five-year term.
He said: 'We want to support the Government's ambition to build 1.5m new homes. Cutting Isa limits could make that more difficult and have a significant impact on economic activity.'
Skipton Building Society, the UK's fourth-biggest mutual lender, said it had warned Ms Reeves that her plans risk 'directly undermining the Government's own target of building 1.5m new homes'.
Charlotte Harrison, chief executive of Skipton's mortgage division, said: '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.'
Isa shake-up
The comments come as Ms Reeves is preparing to reveal plans for a major cut to the cash Isa limit at her upcoming Mansion House speech on July 15.
The shake-up would come as a major hit to building societies, due to current rules which mean that half of all funding for their mortgages must come from customer deposits.
The same rules also restrict building societies from offering stocks and shares Isas of their own, meaning cuts to the cash Isa limit could lead to sharp drops in their deposits.
Building societies have spoken out against Ms Reeves's plans, even as stockbrokers have supported them. The stockbrokers and investment platforms could benefit from changes that would allow more money to be invested in stocks-and-shares Isas they offer.
The UK has 42 building societies, which serve 26m British customers.
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