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Basel Two ‘may see move to credit-scoring’

The advent of Basel Two may mean significant changes to mortgage products and client credit checks, says John Charcol senior technical manager Ray Boulger.

With implementation only 18 months away, lenders are preparing systems to incorporate the stringent risk management measures required by the international regime.

Boulger believes lenders will have to adopt credit-scoring across the board to fulfil the regulatory requirements. He says capital risk-taking depends on lenders displaying the quality of their loan books and those smaller lenders which tended not to use credit scoring may have to do so.

He says as lenders try to balance their portfolios as a result of implementing Basel Two, they may have to contemplate lower LTVs of up to 50 to 60 per cent although this will be compensated by competitive rates.

Boulger says: “There will be a difference in lenders’ requirements and it will have an impact on what we can negotiate in terms of exclusive products. For example, I think that without a doubt we are accelerating towards credit-scoring.”

CML communications manager Bernard Clarke says: “There will be some changes following Basel Two but some, as we have said, have been overstated.”

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