U.K. Banks Won’t Have to Hold Capital on State-Backed Home Loans

Lenders won’t have to hold capital against portions of home loans backed by the U.K. government under its Help-to-Buy program, the Prudential Regulation Authority said.

The mortgages generate “an exposure to the government as guarantor of the first loss on the loan,” and therefore carry a zero risk weighting for the purposes of calculating capital, the London-based PRA said in a statement on its website today.

Royal Bank of Scotland Group Plc’s Natwest unit and Lloyds Banking Group Plc’s Halifax and Bank of Scotland will start offering the Help-to-Buy mortgages this week, with Virgin Money Holdings U.K. Ltd. and Aldermore Bank planning to start in 2014, the Treasury in London said in a statement today. The program allows people to buy a home with a deposit of as little as 5 percent with a guarantee from the government.

“The guaranteed portion of the loan would be treated as an exposure to the U.K. government,” said the PRA, which took over from the Financial Services Authority in April.

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