Mortgages  

Basel plans will hit homebuyers

Basel plans will hit homebuyers

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 that the revisions are not justified by differences in risk, and could limit access to mortgage finance in key areas of the UK housing market.

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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 that 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 upon by many first-time buyers to become homeowners.

Imla’s consultation response highlights how aspects of the Basel proposals could:

Create a “bizarre” situation, whereby 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 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 that lenders can provide mortgage finance where there is a legitimate need while still maintaining a stable UK housing market.