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Home > Prudential Regulation Authority > Residential mortgage risk weights – CP29/16
 

Residential mortgage risk weights – CP29/16

29 July 2016

Background

This consultation sets out proposed changes to the Prudential Regulation Authority’s (PRA) Supervisory Statement on internal ratings based (IRB) approaches to calculating risk-weighted capital requirements for banks and building societies (SS11/13).

The consultation is relevant to PRA-authorised firms that have either obtained or may seek to obtain permission to use the IRB approach to calculate risk-weighted assets for their residential mortgage portfolios.

Summary of proposals

  • The PRA proposes to amend the SS11/13 such that firms would be expected to adopt probability of default modelling approaches for their residential mortgage portfolios that avoid the lack of risk capture identified in the point-in-time and through-the-cycle models currently used by firms, and instead calibrate their models using a consistent and appropriate assumption for the level of model cyclicality.
  • The PRA also proposes to expect firms not to apply a house price fall assumption of less than 25% in their UK residential mortgage loss given default models.


Implementation

The PRA proposes that these changes will come into effect by 31 March 2019 with firms allowed until 31 May 2018 to submit for approval adjusted residential mortgage models meeting these expectations.

Responses

This consultation closed on 31 October 2016. Please address any comments or enquiries to CP2916@bankofengland.co.uk.

Consultation paper

Residential mortgage risk weights – CP29/16

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