UK Mortgage Costs Expected to Rise After Cash ISA Allowance Cuts

Rachel Reeves is set to announce a significant reduction in the tax-free cash ISA allowance from £20,000 to as low as £4,000-£5,000 in her upcoming Mansion House speech, aiming to encourage investment in UK-listed companies and revive the London Stock Exchange. However, major building societies including Yorkshire, Coventry, Skipton, and Darlington warn that cutting cash ISA limits will severely reduce mortgage funding, as cash ISAs constitute up to 39% of their retail savings balances. This reduction is expected to increase mortgage costs and restrict availability, disproportionately affecting first-time buyers, the self-employed, older borrowers, and those on lower incomes. Industry leaders also caution that the change could undermine government targets to build 1.5 million new homes by increasing funding costs and dampening housing market activity. Experts highlight that building societies may need to seek more expensive wholesale funding sources, potentially pushing mortgage rates higher for consumers already struggling with affordability. While Reeves promises no overall reduction in tax-free savings allowances, the shift from cash ISAs to other investment vehicles is expected to have significant repercussions on the UK housing market and mortgage accessibility.