Building societies have renewed their warning that tightening caps on cash individual savings accounts could push up the cost of mortgages.  

The call comes after the Treasury has revived plans to overhaul tax-free Isas that seemed to have been shelved after opposition from mutual lenders in the summer. 

The Chancellor is understood to be studying plans to lower the product’s tax-free limit by as much as half to £10,000 from £20,000 a year at the Budget, according to a report in the Financial Times.

The cash Isa is by far the most popular of this range of products with around £300bn deposited, followed by the stocks-and-shares Isa. 

But Rachel Reeves remains keen to divert some of this cash into stocks and shares Isas, to boost UK firms, and as they are shown to provide higher customer returns over the long-term. 

Currently, savers can put up to £20,000 a year in one Isa, or across the family of four products – cash, stocks and shares, innovative finance and the Lifetime Isa. 

But under new plans, the Treasury is considering cutting the amount savers can put into a cash Isa to £10,000, rather than directly altering the tax-free status of the product at the government’s 26 November fiscal statement. 

The move, if it goes ahead, will be welcomed by fund managers and advisers who would benefit from firms raising more money on the London stock exchange. 

But building societies argue it will make home loans less accessible, while some consumer groups say many consumers are simply not comfortable with market investing.

Skipton Group Home Financing chief executive Charlotte Harrison (pictured) says: “Building societies, which fund over a third of all first-time buyer mortgages, rely on retail deposits like cash Isas to fund their lending. 

“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. 

“That risks derailing the government’s own target of building 1.5 million homes, a goal that depends on buyers being able to secure affordable mortgage finance. 

“At Skipton, we back getting more people to invest, absolutely. But not by penalising savers who want low-risk, flexible options.  

“What’s needed now is a government-supported, industry-led campaign to boost financial awareness, helping people make confident choices about when to save and when to invest. 

“We’ve raised our concerns directly with ministers and will keep pushing for a balanced approach which protects savers and supports homeownership.” 

But AJ Bell director of public policy Tom Selby argues that the Chancellor “is absolutely right to challenge the status quo on Isas”.  

Selby says: “Any reforms pursued at the Budget should focus on making it as easy as possible for those with excess cash to invest for the long-term. 

“The current fragmented market is overly complex and behaviourally illiterate, driving millions of people who could benefit from long-term investing to stick with cash, leaving them vulnerable to the impact of inflation.

“Simplifying Isas by combining the cash and investment versions into a single product is the obvious long-term answer, making the system simpler to navigate and removing barriers between saving and investing.” 

The Chancellor at first seemed to indicate she would leave Isas untouched in July. 

However, at a Mansion House speech that month, Reeves said she would consider “further changes to Isas” and “engage widely in the coming months”, in an attempt to achieve “better outcomes for both UK savers and for the UK economy”. 

The Building Societies Association welcomed the Chancellor’s speech at the time. 

It said: “Over recent months, we have shown that cash Isas serve a broad range of practical purposes, from building financial resilience to saving for a first home to managing finances in retirement.  

“These are not idle funds — they provide a vital role for consumers while financial organisations use these funds to support mortgage and other lending.”