The Prudential Regulation Authority has proposed a revised framework, in its supervisory statement for building societies when assessing risks associated with these three niche markets.
The framework and rules around it stress the risks involved when self-build properties fail to complete, for example. It talks of the need for additional insurances, specialised underwriters and stage payment releases.
For shared-ownership mortgages, the PRA highlights the resource-intensive process involved with a three-way mortgage agreement. Lifetime mortgages, as part of lending into retirement solutions, were highlighted as being ‘particularly risky’ if they had an interest roll-up feature. In its response to the PRA’s consultation, the CML said it was concerned that the regulator was over-emphasising risks which may make certain types of lending seem less appealing.
In its feedback statement, the CML said: “By highlighting the risks of different market segments and perhaps over-emphasising these risks (i.e. not reiterating that appropriate risk management, control and governance systems can mitigate some of these risks), we are concerned that some building societies will conclude that the PRA does not support new entrants into these markets.”
The CML said that the PRA’s proposed changes would be counterproductive to the government’s efforts to promote growth in these areas.
The trade body wants the PRA to ditch its prescriptive limits on the type of business a building society should undertake, given its asset size or other definition.
It added: “We see the process as one of dialogue between an individual society and the regulator; where the society can make representation to the regulator on the rationale – including the risk management, control and governance procedures underpinning this business decision – for entering a new segment of the mortgage market.”
The PRA’s consultation closed to responses on 4 July.