Basel proposals mean Bradford & Bingley asset sale may not match Chancellor's expectations
In the recent Budget, George Osborne announced the sale of Bradford & Bingley loans held by the Government to repay nearly £16bn of debt, which would go a long way to closing the gap in the Government’s finances as a result of the weaker economic outlook.
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, commented:
“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.”
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NOTES TO EDITORS:
* 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.
The Intermediary Mortgage Lenders Association (IMLA) is the specialist trade body representing the interests of lenders who market their products primarily through brokers, rather than direct or through a branch network. IMLA provides a unique opportunity for senior industry professionals to meet on a regular basis to discuss key current initiatives and contribute actively through IMLA and other forums, such as the Council of Mortgage Lenders.
IMLA was formed in 1988 as the Association of Mortgage Lenders and was instrumental in the creation of the CML. It changed its name to IMLA in 1995. Subsequently IMLA helped bring the Association of Mortgage Intermediaries (AMI) into being and was instrumental in bringing the mortgage advisers qualification CeMAP to fruition. More information can be viewed at the IMLA website