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Data shows current buy-to-let capital weightings are supportable


Published: 13 August 2013 | Author: Bernard Clarke

The Prudential Regulation Authority (PRA) has now published its consultation paper, Strengthening capital standards: implementing CRD 4, and we will be responding to it in due course.

As mentioned in an article in the last issue of CML News & Views, CRD 4 includes sections on risk-weighted capital holdings for buy-to-let mortgages and on the definition of material default.

The consultation focuses on how the PRA should implement the package of European regulation contained in CRD 4, including the directive saying that risk weightings for mortgages should be based on the experience of losses.

Since we began publishing data in 1999, buy-to-let arrears have been consistently low, reflecting underlying credit quality. Since 2009, the rate of arrears in the buy-to-let sector has been falling even more sharply than in the residential mortgage market – and has been at a lower level overall for almost two years now. Our latest data of the buy-to-let market, published last week, shows that these trends are continuing.

We therefore welcome the proposals on buy-to-let risk weighting for standardised lenders in the recently published consultation paper by the PRA on the strengthening of capital standards and implementing the EU package of legislation known as CRD 4.

The CML had a number of discussions with the PRA in advance of the publication of its consultation – and it is good to see that the PRA has proposed that the standardised lenders’ risk weighting of buy-to-let mortgages should be based on low loss rate within the market.

The PRA recognises that the UK has a well-developed and long-established residential property market. Buy-to-let lending plays an important part in making a positive contribution and helping to widen tenure choice. Assuming that the PRA confirms its proposals when it publishes the results of its consultation, this will provide welcome certainty for lenders as the buy-to-let market continues to recover.

We will be reviewing the contents of the PRA consultation carefully and seeking the views of members before submitting our full response. The final deadline for responses is 2 October 2013.