REDUCING the cash ISA limit to £12,000 would be a setback for borrowers and the wider property market, as well as potentially lead to higher mortgage rates, experts warn, as it would limit the ability of many building societies that rely on savings to lend.
One former CEO of a building society said it would not just be a setback for savers and borrowers “but the whole building society ecosystem”.
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said: “Cutting the cash ISA allowance by 40% will have a detrimental effect on smaller building societies. It will negatively impact how they help to fund the very property market the government is trying to improve.
“Those societies typically cater for borrowers with unusual incomes, the government’s own Shared Ownership scheme, adverse credit and often properties the high street lenders shy away from.
“Shackling their ability to support borrowers would be a huge set-back for a vital part of the UK lending landscape.”
Higher rates could follow
Craig Fish, Director at London-based Lodestone Mortgages, said cutting the cash ISA limit would show a worrying lack of understanding of how the mortgage market works.
He added: “Building societies rely on cash deposits to fund the loans that keep key parts of the market moving such as holiday lets, expat mortgages and borrowers with complex or adverse credit.
“Slash cash ISA allowances and you reduce the very savings pots these lenders depend on. Less money in means less money out, and that can only lead one way: tighter lending and potentially higher rates.
“At a time when borrowers need stability, this risks choking off competition and putting pressure on already sensitive parts of the property market.”
Tim Bowen, CEO at Wilmslow-based Mutual Vision and former CEO of Penrith Building Society, said the move would be a backwards step: “Cutting the cash ISA limit to £12,000 would not just be a backward step for UK savers but the whole building society ecosystem.
“Less money being saved means there will be less to lend, which is bad news for borrowers and the property market as a whole.
“Last year, in her Mansion House speech, the Chancellor acknowledged the value that mutuals bring and their critical role in the UK financial services landscape, also stating she wished to double the size of the mutual sector, so this would undermine that and be a backwards step.”
Rug pulled from under borrowers
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, was also worried about the fallout: “Building societies are understandably concerned by rumours of cuts in the cash ISA allowances as today’s savings are tomorrow’s mortgages. Reducing what people can save could pull the rug from under borrowers.
“Building societies, a key part of the UK’s lending landscape, are at risk of being marginalised and that will not be good for either market competition or the end consumer.”
Andrew Montlake, CEO at London-based Coreco, said: “While we understand the Government’s logic for encouraging growth and investment rather than saving, with any action there is a reaction.
“Cutting the cash ISA limit could have a real knock-on effect that restricts the level of money building societies get through the door.
“This will potentially mean fewer loans for borrowers, especially in niches such as holiday lets and adverse credit where many building societies come into their own.”
Threat to coastal economies
Kate Allen, Owner at Kingsbridge-based Finest Stays, said the impact on holiday let mortgages could hit entire coastal economies: “A cut to cash ISA limits would reduce the pool of funds available for specialist lending, including loans for holiday lets.
“While clamping down on holiday lets may be a politically attractive soundbite, policymakers overlook the fact that many coastal economies depend heavily on them. Holiday lets drive visitor spending, local employment and a substantial share of coastal GDP.
“With tourism accounting for around 10% of the UK’s total GDP, the Chancellor should think carefully before introducing measures in her Budget that could undermine a sector so vital to national and regional economic health.”
Daniel Hobbs, CEO at Rayleigh-based New Leaf Distribution, is concerned the Government may not have thought this through: “Unintended consequences often bite the hardest. Lenders that rely on cash could see their capacity to offer loans restricted if there are fewer savers due to a reduction in the cash ISA limit. That could have an adverse impact on borrowers and bricks and mortar more widely.”
