The directive, which allows lenders to allocate less capital behind each loan, comes into effect from the beginning of next year, and should mean lenders can price more competitively as they are using their funds more efficiently.
As well as benefits for brokers, John Willcock, products and marketing director at Astra Mortgages, believed prime lenders could draw a number of benefits which could offset the issues raised by the credit crunch.
“It’s not surprising that Basel II has taken a back seat because of the credit crunch, but most lenders are working on it and you will see this next year. For lenders, if they are targeting high quality prime business, the margin will be greater than if they use the standard model. While the credit crunch is still happening, for lenders who are able to raise funding and can then apply Basel II pricing over the top, this will give them the edge.”
Lenders must apply to the regulator by 1 January 2008 to get approval to offer Basel II pricing, but despite the furore caused by the turmoil in the capital markets, the Council of Mortgage Lenders believed lenders would get their applications in before the New Year.
A spokesperson for the trade body said: “There is no indication of lenders not meeting the deadline. It is difficult to say how much impact the credit crunch has had but most banks should have no problem in meeting Basel II.”
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