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Help to Buy offers lenders ‘deal they wanted’ on capital – Broadhead

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  • 08/10/2013
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Help to Buy offers lenders ‘deal they wanted’ on capital – Broadhead
High street banks have “got the deal they wanted” on Help to Buy capital relief and smaller lenders could also benefit, a consultant on the scheme has said.

As part of today’s announcements about the Help to Buy mortgage guarantee scheme, the Treasury has said all lenders who join the scheme will gain an element of capital relief.

Lenders had previously indicated this could be a key factor in whether they joined the scheme. 

Building Societies Association head of mortgage policy Paul Broadhead participated in Downing Street discussions about the scheme earlier this year. He said he welcomed the Treasury’s decision to extend capital relief to all lenders involved, including smaller banks and building societies. 

Under the capital relief rules, large banks with the capacity to forecast how much capital they will need to hold are treated separately, both from each other and smaller lenders.

Broadhead said the move created a level playing field for lenders, but the jury was still out on the likely uptake of the scheme.

“The high street lenders have got the capital relief they wanted, although it is not the same for each large bank.”

However, he suggested smaller lenders would want to weigh up the benefits of capital relief with the additional costs associated with joining the scheme, such as reporting more information to the regulator.

He said: “If you are a lender that has done securitisation before, you will be able to adopt this much quicker because you are used to providing all this information required by the Prudential Regulation Authority in order to be eligible for capital relief.

“It could be more challenging for lenders who have not done securitisation before.”

Smaller lenders already offering 95% loan-to-value mortgages may also want to consider the cost of the Help to Buy mortgage guarantee fees compared to the insurance they can buy on the market, he added.

The announcement on capital relief comes ahead of stricter capital requirements for lenders, due to start in January 2014.

According to the Help to Buy mortgage guarantee rules, published today, lenders will be charged a fee for the mortgage guarantee based on a percentage of the loan made to the customer. 

As Mortgage Solutions reported exclusively last week, lender fees for the mortgage guarantee scheme will be 46 basis points for loans between 85% and 90% LTV, and 90 basis points at 90 to 95% LTV. 

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