The Intermediary Mortgage Lenders’ Association (IMLA) has warned that Basel proposals mean Bradford & Bingley mortgage sale may not match the Chancellor’s expectations.
In Wednesday’s Budget, George Osborne announced the sale of Bradford & Bingley mortgages held by the government to repay nearly £16bn of debt, which would go a long way to closing the gap in the government’s finances as a result of the weaker economic outlook.
IMLA noted that a large proportion of the assets are buy-to-let mortgages which are the subject of the latest consultation on credit risk weightings from the Basel Committee on Banking Supervision.
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.”
IMLA noted also that according to the latest industry statistics, buy-to-let mortgages have a very strong track record for credit quality with arrears at around half the level of the market more generally and with 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.”
