The Intermediary Mortgage Lenders Association has warned homebuyers with small deposits will bear the brunt of proposals from the Basel Committee on banking supervision, which would change approaches to credit risk.
The Basel framework ensures banks, building societies and other deposit-taking institutions have sufficient capital for the underlying risks they bear.
While Imla supported this objective, it raised “significant concerns” over some proposed revisions in the latest Basel consultation.
It argued they not justified by differences in risk and could limit access to mortgage finance in key areas of the UK housing market.
Imla’s criticism followed the Council of Mortgage Lenders’s submission to the Basel Committee in March, which branded the plans too blunt for a market as well regulated as the UK’s.
The consultation is focused on revisions to the standardised approach for credit risk, which sets out proposals to change the risk weighting of mortgage assets.
Outcomes from the consultation will eventually determine how much capital lenders have to set aside against different types of lending.
Imla pointed out the proposals mean the regulatory cost of buy-to-let lending could far outweigh the risks involved, as they do not accommodate the fact that many buy-to-let borrowers are substantially more financially secure than the average owner-occupier.
It also “strongly disagreed” with plans that could distort mortgage pricing and push up the cost of higher loan-to-value mortgages, which are relied on by many first-time buyers to become homeowners.
Doing so could incentivise them to seek out unsecured ‘top-up’ loans to fund their house purchases with a lower LTV mortgage, which would be potentially harmful to their finances.
Imla’s consultation response highlights how aspects of the Basel proposals could: |
| Create a “bizarre” situation where unsecured lending can be given a lower risk weighting than secured lending to the same borrower. |
| Penalise lenders that have adopted conservative lending standards. |
| Create an artificial incentive to lenders to remortgage or ‘churn’ customers, creating outcomes that would not be deemed good for either the customer or the lender |
Imla’s executive director Peter Williams said it was vital to have the right checks and balances in place so lenders can provide mortgage finance where there is a legitimate need while maintaining a stable UK housing market.
“The Basel consultation sets out with the important aim of ensuring capital requirements are appropriate to the underlying risk, but we are concerned that the current proposals will not meet this goal.”
He added that the government and industry need to work together to bring greater balance to the UK housing market. “This includes ironing out the technical details of the Basel proposals to defend consumer interests across all housing tenures.”
peter.walker@ft.com
