City firms push for more stock market investments but nationwide argue that cutting ISA incentives could limit mortgage access for first-time buyers

Britain’s largest building society, Nationwide, has strongly opposed potential government plans to cut tax breaks on cash ISAs, warning that such a move could reduce mortgage availability for first-time buyers. The debate intensified after reports emerged that Chancellor Rachel Reeves faces pressure from City firms to scale back or eliminate these tax advantages.

Nearly 8 million savers rely on cash ISAs each year. City firms advocate for a shift toward stock market investments, arguing that this change would align with the government’s economic growth strategy and potentially offer higher long-term returns. However, financial institutions like Nationwide emphasize that cash ISAs play a crucial role in funding mortgages and business loans.

Tax-free ISAs have existed since 1999, allowing individuals to save up to £20,000 annually. More than 18 million people hold cash ISAs, collectively storing almost £300 billion. Treasury Economic Secretary Emma Reynolds recently questioned this vast sum, stating before a House of Lords committee, “Why do we have hundreds of billions of pounds in cash ISAs? … What can we do together in Parliament about trying to drive an investment culture that realizes cash is not a good investment, especially in a high-inflation environment?”

Banks, building societies, and credit unions use cash ISA deposits to fund lending, making them vital for homebuyers. Tom Riley, director of retail products at Nationwide, highlighted the importance of cash ISAs, stating, “Cash ISAs not only help ordinary people save efficiently but enable us to fund our first-time buyer lending.” He warned that restricting these accounts could further complicate mortgage access, particularly for those struggling to save for a deposit.

Nationwide, one of the UK’s top mortgage lenders, reported record growth in home loans and deposits last year. In September, it introduced an industry-first policy allowing first-time buyers to borrow up to six times their income. Other building societies, including Leeds and Yorkshire, echoed concerns about potential cash ISA restrictions. Leeds Building Society’s Chief Commercial Officer Andy Moody warned of a “significant detrimental impact on mortgage lending.” Yorkshire Building Society’s Director of Savings, Chris Irwin, added that removing cash ISAs would hurt savers’ financial security and increase their tax burdens.

Nationwide’s concerns follow a letter from the Building Societies Association (BSA) to Reeves, urging the Chancellor to protect cash ISAs. BSA Chief Executive Robin Fieth strongly opposed the City firms’ calls, emphasizing their importance to consumers. Andy Briggs, CEO of Phoenix Group, acknowledged the need for long-term growth strategies but stressed that eliminating cash ISAs entirely would not be the right approach.