John Heron: Basel buy-to-let requirements to be watered down

Ryan Bembridge

February 28, 2017

john heron

John Heron of Paragon Mortgages expects the Basel Committee’s buy-to-let capital requirements to be watered down by the time they come into force.

The Basel Committee published a document in December 2015 proposing that lenders hold more capital in reserve for buy-to-let borrowing which would make high loan-to-value lending especially onerous.

But Heron (pictured), who is managing director of Paragon Mortgages, said: “There is a strong body of opinion that what is finally published is likely to be moderated compared to what was proposed in the first place – and it certainly better be!

“There clearly is a lot of toing and froing behind closed doors and it may well be that what is eventually presented to the market is more palatable.”

It was originally proposed that buy-to-let ‘risk weightings’– referring to how much capital lenders need to hold against loans – would rise from 35% to 91% and end up as high as 120% for mortgages above 80% loan-to-value.

Heron was answering a question posed by Mortgage Introducer at the Paragon Great Buy to Let Debate in Westminster today.

He added: “Even if these proposals were presented as originally set out lenders would need to find ways of coping more effectively with them, probably through adopting the internal ratings based approach [where banks are allowed to use their own estimated risk parameters providing they meet certain conditions].

“Depending on how those capital requirements turn out they may make buy-to-let lending less attractive and therefore make it more expensive to landlords or lower the supply of buy-to-let lending.”

The results from the Basel Committee consultation were originally due in January but have been delayed.

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