Commenting on the plan, the Intermediary Mortgage Lenders Association (IMLA) noted that a large proportion of the assets are buy-to-let (BTL) mortgages which are the subject of the latest consultation on credit risk weightings from the Basel Committee on Banking Supervision.
Peter Williams, Executive Director of IMLA, comments
“There is a good chance the sale of these assets will be compromised as a result of proposals being considered by the Basel Committee. 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.”
IMLA noted also that according to the latest industry statistics, BTL mortgages have a very strong track record for credit quality with arrears at around half the level of the market more generally and just 0.58% of loans over 3 months in arrears.*
Peter Williams continued:
“There is no evidence to support the Basel Committee’s proposals for higher levels of capital for BTL mortgages; on the contrary, BTL 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.”
*CML data indicates that 1.3% of BTL mortgages were in arrears during Q4 2015, compared with 2.2% across the wider market (owner occupier and BTL). Among BTL mortgages, 0.58% were over three months in arrears during Q4 2015 – the lowest percentage since records began in 2006 – compared with 1.22% of owner occupier mortgages.
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Notes to Editors
The Intermediary Mortgage Lenders Association (IMLA) is the trade association that represents mortgage lenders who lend to UK consumers and businesses via the broker channel. Its membership of 40 banks, building societies and specialist lenders include 16 of the 20 largest UK mortgage lenders (measured by gross lending) and account for about 90% of mortgage lending (89.4% of balances and 90.6% of gross lending).