Monday, 02 March 2015

Landlords could face multi-million pound hit from proposed regulations

New banking rules spark repricing fears

Proposed new banking regulations could cost housing associations hundreds of millions of pounds and deter lending to the sector.

The end of cheap banking is nigh

David Orr, chief executive of the National Housing Federation, raised the issue with Danny Alexander, chief secretary to the Treasury, at a meeting on Monday.

The Prudential Regulation Authority on 29 April closed a consultation into changes which would require some banks to hold more capital against their loans.

Under the PRA proposals banks could be required to hold capital of 35 per cent against loans to corporate bodies, including housing associations. The figure will be 45 per cent for unsecured debt.

This has alarmed the NHF as many housing association portfolios currently require just 10 per cent of capital to be held. The NHF fears the move will increase lenders’ costs and therefore lead to more expensive debt as well as reduce appetite for lending to associations. There is also a risk of repricing as many agreements allow lenders to pass on increased regulatory costs.

Stuart Ropke, assistant director of research and futures at the NHF, said: ‘This is an important issue that could impact on the approach of major lenders to the sector.’

The NHF believes housing associations will be unfairly hit as the capital requirement for normal residential mortgages will remain at 10 per cent.

It wants the PRA to think again, taking into account the sector’s secure income stream and regulated operating environment.

Only banks using a particular form of assessment, where they calculate their own capital ratios, will be affected by the move. These include Nationwide, Santander, RBS and Barclays, which jointly lend £40 billion to the sector.

Mr Alexander is understood to have said he will look into the NHF’s concerns. But Howard Webb, director at consultancy Sector, said banks’ costs could actually fall if investors gain confidence as a result of their holding more capital.

The changes are part of the Basel III global accord to strengthen banks’ balance sheets. They will be phased in between 2014 and 2019. The PRA’s final proposals are expected later in the year.

A spokesperson for the PRA said: ‘We are considering the responses we have received and we will publish final rules in due course.’

Readers' comments (6)

  • Some HAs have most of their portfolio afflicted by occupancy, tenure and price controls imposed by LPAs.

    I wouldn't lend anything to them.

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  • I don't know why the NHF persist with banks when there are other forms of borrowing out there and cheaper. If this is a lead by the banks to charge people for accounts, it wont work for me, I haven't had an account for 5 years and don't intend getting one! We should go back to being paid weekly cash in hand! This way we will know if companies are solvent or not.

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  • abner arrow

    In my view the current valuation is abstract and I am unsure how a financial institution can afford to offer a loan on this basis. Ultimately the risk is mitigated as the government may step in if there are issues with repayments. I however do not see why the tax payers have to be exposed to such risks for any reasons whatsoever; including the match boxes which are branded by HAs as new housing.

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  • I have little knowledge of finance, but, is it not peculiar that in recession, banking crisis and bailout that the Footsie has reached record levels of trading? There seems to be little investment in housing, is that because the financial institutions (whoever they are) know that housing in England is overvalued?

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  • The world's stock markets are also deemed to be significantly over valued - in relation to core fundamentals of underlying businesses.

    If HAs are operating more like a business entity - then of course when they issue a profit warning - in relation to funding cuts via OBC - then they would naturally expect future lending costs to be higher.

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  • And gold is over valued when demand is high, then its not when Cyprus cashes in its reserves. And oil is overvalued, and then its not when Saudi Arabia increases supply. And wheat, and praities and all food stored, keeps prices high and lets the needy die - aaghh Capitalism we love you so...

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