This latest consultation entitled Revisions to the standardised approach for credit risk, could easily be dismissed as a technical consultation aimed at increasing financial stability across the financial services industry.
After all the Basel Committee itself described the objective of the proposal as being:
“To reconsider the design of the standardised approach, to ensure its continued suitability for calculating the capital requirements for credit risk exposures.”
Pretty technical stuff right? Something for the prudential specialists to worry about right?
Well, yes it is technical, and it is something that prudential specialists will be focusing on carefully, but the impact of these initial proposals could be wide ranging and potentially very damaging to the UK mortgage market in the UK.
On 2 February a Times headline read:”Secretive bank watchdog could slam door on first-time buyers.”
Not only could the Basel proposals adversely affect lending to first-time buyers but it could affect a far wider number of groups than that. Lending to social housing providers, buy-to-let mortgages and self and custom build could be similarly affected.
In essence, the changes currently proposed by the Basel Committee would make mortgage lending and therefore borrowing in the UK far more expensive. Lending, especially at higher loan to value ratios, would become substantially more capital intensive, and increased capital means higher costs.
Realistically, we are at the very beginning of this process and therefore nothing will actually change for at least a couple of years but as currently drafted, these proposals would change the UK mortgage and housing landscape significantly. It would be challenging for lenders, brokers and aspiring borrowers alike.
This initial consultation closes on 27 March and we will be responding in strong terms. I would encourage others to do the same.
Paul Broadhead, head of mortgage policy at the BSA