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&#39Basel II may force sub-prime firms to raise prices&#39

Sub-prime lenders could be forced to raise prices by Basel II capital requirements because of their high level of exposure to riskier borrowers, warns the Council of Mortgage Lenders.

A CML report, called, Basel II Capital Accord: Impact on UK Mortgage Lenders, published this week, warns that this could be one of several unintended consequences of forcing lenders to price products more transparently in relation to risk from 2006.

The report also warns that some sub-prime lenders without the necessary capital may “withdraw from those market segments completely”.

It warns that there could be less price competition, interest repayments on sub-prime mortgages could be higher and high-risk borrowers could struggle to secure a loan.

Broker club Mortgage Intelligence thinks this paints a darker picture than reality, saying most sub-prime lenders do price for risk.

But lender Future Mortgages says firms without major lenders providing financial backing may find it harder to compete.

The CML warns that Basel II could see lenders choosing to deal with bigger intermediary networks rather than small brokers which will not be able to supply enough financial data for a risk assessment.

Head of external affairs Sue Anderson says: “One of the impacts of the accord will be greater pricing for risk and there will inevitably be winners and losers.

“But the report looks at the theoretical impact of Basel and in reality many other factors also affect pricing.”

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