Why Cash ISAs Matter: Supporting Home Buyers
The debate about economic growth continues to dominate the political agenda ahead of the Spring Statement. As part of this, there has been a focus on Cash ISAs and the role they play in supporting the mortgage market and financial resilience.
Cash ISAs support mortgages and homebuyers
One in four UK adults have a Cash ISA and building societies hold £154bn in Cash ISAs for their members. These savings play an incredibly important role for building societies - who need to get at least 50 per cent of their funding from retail savers. In turn, this funding underpins the UK mortgage market and the lending building societies can offer to home buyers. This represents a direct investment in the UK economy.
On the other hand, limiting Cash ISA deposits could make mortgages more expensive and less available. This would make it more difficult to support the Government’s ambition to build 1.5m new homes.
In addition, there is research to evidence the associated benefits to buying a home. A Knight Frank report suggests each housing transaction contributes almost £10k to economic growth. A LSE/Family Building Society report found that for every housing transaction an average expenditure of £16k in moving expenses and spend on the new home was generated. Further research from Bristol University shows that the security of home ownership improves well-being, which is likely to reduce costs for health and social care and in turn boosts employee engagement and productivity. This all makes a contribution to the Exchequer’s coffers.
People with Cash ISAs want a guaranteed return on their savings
Around half (47 per cent) of all Cash ISAs are held by people with incomes of less than £20,000 (HMRC Data), while the average savings balance is just under £13,400 (HMRC Data). Almost all those who have a Cash ISA are aware of Stocks & Shares ISAs, but they are unwilling to take a risk with their money. Nine in ten (90 per cent) of them say it’s important that they get back at least the amount they have saved or invested – a guarantee that can only be provided with cash savings. There is therefore no guarantee that a lower Cash ISA limit will see a growth in Stocks & Shares ISAs.
Only 11.5 per cent of investment funds are invested in UK equities
In comparison, one in five (21 per cent) of UK adults have a Stocks & Shares ISA, and collectively they contain £431bn (HMRC Data). But only around £1 in every £10 (11.5 per cent) of investment funds, including Stocks & Shares ISAs, are invested in UK equities. By moving more money into Stocks & Shares ISAs investment and growth is not guaranteed here in the UK.
If the Government really wants to target capital for growth, a better approach would be to look at the percentage of funds under management that goes into overseas equities – something which is on the rise. According to the Investment Association, the amount going to UK equities declined from 29.6 per cent in 2008 to 11.5 per cent in 2023, while the proportion going into overseas equities increased from 28.1 per cent to 42 per cent. Increasing the percentage invested in the UK would achieve the aim more effectively and help tackle the growth challenge.
For further information on the important role Cash ISAs play, contact pressoffice@bsa.org.uk and follow the Building Societies Association on LinkedIn
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