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Option Homes Ltd - News- Banking Reforms Warning for First Time Buyers

Banking Reforms Warning for First Time Buyers

Date Added 15/05/2016

It has been claimed that proposed banking reforms could negatively affect the prospects of first time buyers as well as housing associations if they are introduced without some of the technical details being adjusted. The fear comes from how the reforms will influence credit risk and how lenders view certain sections of the housing market.

The Intermediary Mortgage Lenders Association (IMLA) has warned the UK housing market that the banking reform proposals by the Basel Committee on Banking Supervision will revise the standardised approach for credit risk evaluations, and it might adversely affect those who could do without it the most.

What the Banking Reform Proposals Are

The proposals are intended to ensure that all deposit taking institutions such as banks and building societies should always have sufficient capital to cover every lending risk they take. The IMLA does actually support the objectives of the Basel Committee, but they are concerned that some of the revisions are not necessary according to the different types of risks involved in mortgage lending. They are worried that unjustified changes to the current status quo could see restrictions placed on access to mortgages which will primarily affect first time buyers who tend to be younger and have less capital themselves.

Housing Associations Could Also Suffer

The IMLA fears that the Basel proposals could prevent mortgage lenders from taking into account the borrower`s financial strength, which would see lending to housing associations become subject to much higher capital-based pre-requisites. This is particularly unnecessary as housing associations do not have poor form in this area and actually have an excellent track record for paying back loans. They are also Government regulated organisations who are constantly monitored and regulated. The IMLA believe redefining how lenders evaluate their prospects could have a seriously adverse affect.

Basel Proposal Details Require Ironing Out

The Executive Director of the IMLA, Peter Williams, said, `It is vital to have the right checks and balances in place so lenders can provide mortgage finance where there is a legitimate need while maintaining a stable UK housing market. 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.`

We must hope that the IMLA`s concerns are listened to and that a compromise can be reached which will allow housing associations to continue their good work as well as not restricting the opportunities for first time buyers.
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