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YBS speaks out over ‘low risk’ capital exposure of mutuals

by: Mortgage Solutions
  • 18/04/2016
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YBS speaks out over ‘low risk’ capital exposure of mutuals
Yorkshire Building Society told the European Banking Authority (EBA) imposing tougher rules on all mortgage lenders will cost providers more and make it harder for homebuyers to get a loan.

A report in The Telegraph describes a last-minute bid by the mutual to stave off the move by European regulators, which it told does not ‘recognise that its exposures are low risk’.

Building societies say their mortgages are typically low-risk because they ask for larger deposits from borrowers.
“We could either be told to go and raise capital which is very expensive, or we would have to alter our pricing, or reduce growth, and none of those options are particularly palatable,” said Andy Caton, the mutual’s chief of corporate affairs.

The EBA is looking at imposing a tougher leverage ratio – a rule which limits the amount of lending a bank can do for a given capital base – which could hike the leverage ratio from 3% to 4% forcing the average lender to cut its loan book back by 5%.

The European Commission has already told the EBA to push past the usual lengthy consultation process and aim to make this law by the end of 2016.

Meanwhile, last week, Manchester Building Society posted a £4.9m loss in its 2015 annual results and said it was working towards securing its future.

Manchester BS, chairman David Harding said: “Although there is uncertainty regarding the long-term future of the society, we continue to put the best interests of our members first. The board is developing a number of options which individually or in combination are reasonably expected to secure the future of the society, to enable it to continue to meet capital requirements and to improve the quality of its regulatory capital.”

The building society swung to a £4.9m loss in 2015, following a £4.5m profit in 2014. The mutual is in the process of winding down its mortgage book and has no plans to start re-lending.

Its loan book fell to £331m last year from £387m a year earlier and reportedly has around 4,000 mortgage borrowers and 18,000 savings account holders.

The mutual, which has one branch in Queen Street in Manchester, is looking either at a capital injection or a merger.

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