The Intermediary Mortgage Lenders Association (IMLA) warned that proposals to increase the risk weighting assigned to buy-to-let lending could distort mortgage pricing and push up the cost of higher loan-to-value (LTV) mortgages, blocking the aspirations of many first-time buyers to purchase a home.
In limiting the options for first-time buyers, IMLA said aspiring homeowners could be incentivised to seek out unsecured ‘top-up’ loans to fund purchases with a lower LTV mortgage, potentially harming their finances.
Under proposals set out by the Basel committee, which sets banking standards on a global scale, banks, building societies and other deposit-taking institutions could be forced to hold more capital in reserve for buy-to-let lending. This could see the standardised risk weighting for loans to landlords swell to 91% from 35% and even 120% for loans at 80% LTV or higher.
Peter Williams, executive director of IMLA (pictured), said: “The Basel consultation sets out with the important aim of ensuring capital requirements are appropriate to the underlying risk, but we are concerned that the current proposals will not meet this goal.
“Government and industry need to work together to bring greater balance to the UK housing market. This includes ironing out the technical details of the Basel proposals to defend consumer interests across all housing tenures.”
The consultation paper also suggests an implicit re-weighting of the funding of housing associations, which IMLA described as “one of the most serious impacts” of the reforms. The trade body raised concerns that access to funding for housing associations could be drastically affected, despite “exemplary” payment track record and the government regulated status of these loans.
The proposals have come under attack from the buy-to-let sector in recent months, as lenders and brokers raised concerns that it was important to wait until the full impact of the higher rate of Stamp Duty tax on second homes and a restriction on mortgage interest relief for landlords played out in the market.