During his Budget this week, the Chancellor confirmed that the government would sell off £16bn of its Bradford and Bingley assets, helping to repay debt owed to the Financial Services Compensation Scheme.
However, with these loans made up mostly of buy-to-let assets, the Intermediary Mortgage Lenders Association (IMLA) said that uncertainty around whether Basel proposals are to be implemented could prevent a sale from even taking place.
Peter Williams, executive director of IMLA, said: “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.”
The consultation paper on Basel’s recommendations is still open but if the proposals come into force, a standardised risk weighting for buy-to-let loans could be ramped up from 35% to 91%, and even 120% for loans at 80% loan-to-value (LTV) or higher. The consultation was brought about amid concerns that buy-to-let loans were deemed riskier than deals for homeowners.
Data published by the Council of Mortgage Lenders indicates that buy-to-let mortgages have in fact a strong track record for credit quality, with arrears at around half the level of the market average and just 0.58% of loans over three months in arrears.
Williams added: “There is no evidence to support the Basel Committee’s proposals for higher levels of capital for buy-to-let mortgages; on the contrary, buy-to-let 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.”