Mortgages  

Warning EU rules could derail Bradford & Bingley sell-off

Warning EU rules could derail Bradford & Bingley sell-off

Selling off government holdings of Bradford & Bingley mortgages could be derailed by plans being considered by the European Basel Committee, the Intermediary Mortgage Lenders Association has warned.

In his Budget earlier this week, George Osborne announced the sale - expected to be completed by 2017 to 2018 - in order to repay nearly £16bn of debt created by the government’s bail-out of the buidling society during the financial crisis.

Following the collapse of the subprime mortgage sector in 2008, Bradford & Bingley was nationalised and split up, with its deposits and branch network sold to the Santander Group, but the mortgage book retained by HM Treasury.

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However, the Imla executive director said a large proportion of the assets are buy-to-let deals, which are the subject of the latest consultation on credit risk weightings from the Basel Committee on Banking Supervision.

Executive director Peter Williams said there is a good chance the sale of these assets will be compromised as a result of proposals being considered.

“If implemented, these would require any buyer of the mortgages to hold almost three times as much capital against them as they would today. At this level the assets may be deeply unattractive to many investors which will reduce the revenue the sale could generate.

“Furthermore, if there is continuing uncertainty around capital weights for buy-to-let mortgages it may be difficult to achieve a sale at all because the market will not know how to price them.”

He pointed out that according to the Council of Mortgage Lenders’ latest industry statistics, buy-to-let mortgages have a strong track record for credit quality, with arrears at around half the level of the market more generally and with just 0.58 per cent of loans over three months in arrears.

The CML recently responded to the Basel Committee’s revisions to the standardised approach for credit risk, arguing that the plans remain too blunt for a market as well regulated as the UK’s.

If adopted as drafted, they could have an “unduly harsh” effect on buy-to-let lending by lenders on the standardised approach, stated the CML, calling for more differentiation to accurately reflect the level of underlying risk against different tranches of lending.

Mr Williams said there is no evidence to support the Basel Committee’s proposals for higher levels of capital for buy-to-let mortgages, rather such loans have much lower levels of arrears than other mortgages.

“The Basel proposals make no sense at all, but if implemented they may well scupper the plans for the sale of the B&B portfolio and with it the chancellor’s promise of a budget surplus by the end of this parliament.”

peter.walker@ft.com