Proposed Basel changes could distort UK mortgage market, warns Council of Mortgage Lenders

Chris Papadopoullos
Follow Chris
League Table Shows Kensington Park Gardens As The Most Expensive Street In UK
The new rules make banks hold more capital against prime residential and buy to let mortgages (Source: Getty)

Proposed reforms to financial regulations would have “negative and unintended consequences” for the UK mortgage market, the Council of Mortgage Lenders (CML) has warned today.

The CML said proposed reforms to Basel rules, a set of global rules adhered to by countries voluntarily, were "unduly harsh" on prime residential and buy to let mortgages. The reforms give them a higher risk weighting, meaning banks would need to hold more capital than otherwise.

Read more: Mortgage products soar to eight-year high in January

“Our submission argues that significant increases in risk weightings proposed by the Basel Committee on Banking Supervision (BCBS) for both prime residential and buy-to-let lending are not justified by historic losses,” the CML said.

“In current market conditions, mortgage funding is available and attractively priced, and UK consumers are enjoying some of the lowest rates ever. But capital requirements that are excessive relative to the risk of the underlying assets are likely to affect the cost and availability of mortgages.”

Read more: Mortgage rates hit record low – Bank of England

The CML said its view that the risk weightings being proposed by the BCBS for the standardised approach are too high is supported by evidence from lenders that have adopted the more sophisticated internal ratings-based approach to assessing risk.

The proposed changes also fail to take into account the way mortgage regulation has been reinforced in the UK, the CML said. It added:

Now that we have stress testing of mortgage affordability by the Financial Conduct Authority, for example, we believe that the BCBS places too much emphasis on historic loss data in its proposals for calculating risk weightings.

Related articles