BSA calls for holistic approach to housing market
Opening the 144th annual conference of the Building Societies Association in Harrogate, Webster also warned of potentially choppy waters ahead in relation to changing capital requirements.
“The focus of government on the housing market is welcome however a more holistic approach to the challenges of supply and demand, starting at the level of infrastructure planning could be more beneficial than individual schemes,” he said.
“It is to be hoped that as the details of the new Help to Buy Scheme are developed, government has a viable exit strategy. Fannie Mae in the US was introduced as a similar temporary measure during the Great Depression and 70 years later is a policy headache for the US administration.”
He said that during 2012 and into 2013 mutual lenders have been at the core of the mortgage market, particularly as some big plc banks have been restructuring their balance sheets and lending less as a consequence. Over the first quarter of 2013, net lending by building societies and other mutuals totalled £1.9 billion; the figure for all other providers was minus £1.7 billion.
However, he said the introduction of leverage ratios could pose a real risk for mutuals: “These have been designed for big plc banks and intended as a back stop measure of capital adequacy which takes no account of risk weighted assets.
“For the mutual sector, which has lower risk assets, a stable retail funding base, but restricted access to capital it could pose a real risk. If the level set is high and the glide path to implementation is short, far from being a backstop measure it will become the main driver of capital management.
“Perversely it could make prime residential lending far more capital intensive and therefore less attractive and put the sector at a competitive disadvantage to the big plc banks.
“In this context, the 3% leverage ratio suggested by the Treasury is far more sensible and sensitive to the different structure of the mutual sector than the 4.06% mooted by the Parliamentary Commission on Banking Standards.
“It is to be hoped that the implementation schedule will be equally sensitive.”