The FPC reduced the Tier 1 capital requirements from 14% of risk-weighted assets to 13% and said this should give banks more certainty and confidence in using their capital resources to lend.
The BSA said the adjustment was small but important and would “ensure that capital levels remain strong without unnecessarily constraining lending, homeownership or wider economic activity”.
However, it said current rules required mutuals to hold around 10 times the minimum Pillar 1 requirements against low-risk mortgages, saying this could restrict lending to first-time buyers and reduce the “economic contribution generated by house purchases”.
The association called for regulators to consider how different capital requirements worked in practice and said the blanket approach limited the growth of mutuals.
It said any “gradual and well-controlled easing of capital requirements to allow more mortgage lending would be strongly welcome”.
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The BSA said it hoped the FPC would consider “how requirements that are penal to certain business models might then constrain growth in that sector”, consequently reducing diversity across business models and the negative impact of this on financial stability.
Ruth Doubleday, head of prudential regulation at the BSA, said: “It is appropriate for the FPC to review and refine how the capital framework is functioning in practice, particularly aspects that are not part of the international framework and therefore gold-plating. Regulations need to be robust, but not punitive to the point of stifling growth of sustainable lending and homeownership.
“On the question of buffer usability, this is the wrong answer to the wrong question. A better question is how the FPC’s policies can better support lending through the economic cycle. Building societies have shown time and again that they support mortgage lending, even when the wider market pulls back. Overly conservative capital add-ons for low-risk mortgages are holding back lending to first-time buyers and limiting the sector’s ability to contribute to growth.”
She added: “Getting the right balance of strong, sensible regulation will help more people achieve homeownership and support the wider UK economy. With the government commitment to double the size of the mutual sector, we urge the regulator to ensure the capital framework enables, rather than constrains, responsible growth.”
