The UK’s largest building society, Nationwide, has stepped into the debate over whether the government should reduce tax benefits on cash ISAs, warning that such a move could limit mortgage availability for first-time buyers.

Reports have surfaced in recent days that Chancellor Rachel Reeves is facing pressure from City firms to scale back or eliminate tax breaks on these popular savings accounts, which nearly 8 million people use each year.

Advocates for the change argue that shifting the focus toward stock market investments—considered riskier but potentially more lucrative—would align with the government’s push for economic growth and offer individuals higher long-term returns.

Tax-free ISAs were introduced in 1999, with the two main types being cash ISAs and stocks and shares ISAs. Currently, savers can deposit up to £20,000 annually in an ISA.

More than 18 million people hold a cash ISA, collectively holding close to £300 billion. However, last week, the new Economic Secretary to the Treasury, Emma Reynolds, appeared to question their effectiveness, telling a House of Lords committee: “Why do we have hundreds of billions of pounds in cash ISAs? … What can we do in Parliament to encourage an investment culture that recognizes cash is not a good investment, especially in a high-inflation environment?”

Despite this, cash ISAs play a crucial role in funding loans for banks, building societies, and credit unions, which rely on these deposits to lend to households and businesses.

Tom Riley, Nationwide’s director of retail products, emphasized their importance, stating: “Cash ISAs not only help ordinary people save efficiently but also allow us to fund our first-time buyer lending.”

He added that any restrictions on lending would make it even harder for prospective homeowners to save for a deposit at a time when it is already a major challenge.

As one of the UK’s largest mortgage lenders, Nationwide has seen record growth in home loans and deposits. In September, it became the first major high street lender to allow first-time buyers to borrow up to six times their income.

Other building societies have echoed Nationwide’s concerns. Andy Moody, chief commercial officer at Leeds Building Society, warned that weakening cash ISA rules would significantly harm mortgage lending, particularly for first-time buyers.

Chris Irwin, director of savings at Yorkshire Building Society, cautioned that removing cash ISAs as a savings option would negatively impact financial well-being while increasing tax burdens for many.

Nationwide’s warning follows a letter from the Building Societies Association (BSA) to Reeves, urging her to maintain cash ISA benefits.

BSA chief executive Robin Fieth strongly opposed the City firms’ proposals, stating: “I am writing to put on record how strongly we disagree with the recently reported calls to restrict cash ISAs.”

Meanwhile, Andy Briggs, CEO of Phoenix Group—described as the UK’s largest long-term savings and retirement business—stressed that while he does not support scrapping cash ISAs entirely, he believes tax policy should better support long-term financial growth for individuals and the wider economy.