New credit risk rules could curtail mortgages for first time buyers

First time buyers with small deposits are among those likely to suffer as a result of new regulations on credit risk coming from the Basel Committee on Banking Supervision.

That’s the view of the Intermediary Mortgage Lenders Association. 

The Basel framework ensures that banks, building societies and other deposit-taking institutions have sufficient capital for the underlying risks they bear. IMLA says it proposes the objective but has “significant concerns” over some proposals. 

It says some Basel proposals for the future 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” says a statement from the association.

IMLA claims Basel proposals could create a bizarre situation where unsecured lending can be given a lower risk weighting than secured lending to the same borrower, it could penalise lenders that have adopted conservative lending standards, and could create an artificial incentive to lenders to remortgage or ‘churn’ customers and so create outcomes that would not be deemed good for either the customer or the lender

The same 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.