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BSA warns over Help to Buy hurdles for small lenders

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The Building Societies Association is urging the Government to create a level playing field with the second instalment of Help to Buy as it warns small lenders could miss out on capital relief.

Lenders say capital relief on high loan-to-value mortgages is vital to the success of the mortgage indemnity guarantee instalment of Help to Buy, set to launch in January.

The Treasury held talks with lenders and builders last week to outline details of the scheme, which will help borrowers obtain 95 per cent LTV mortgages through Government guarantees. Capital relief was not raised but negotiations with the Prudential Regulation Authority are ongoing and the Treasury is confident of agreement this year.

There are two methods of calculating bank capital: an internal ratings-based system and a standardised approach which uses external ratings. 

The external method is used by smaller lenders that do not have the systems needed for an internal approach.

The BSA says under the Newbuy scheme only banks that used an internal ratings system received capital relief.

BSA head of mortgage policy Paul Broadhead says: “It is safe to assume there will be capital relief on the IRB approach, which is the major banks, but it is less clear for lenders on a standardised approach.”

Banking consultant Mehrdad Yousefi says: “The Treasury will need to look at banks on a bespoke basis because whether or not lenders enter the scheme depends on capital relief.”

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