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Miles says UK is long way from risk-based pricing

Professor David Miles says lenders in the UK mortgage market are a long way from adopting risk-based pricing.

Speaking at a round table event last week organised by Zurich Mortgage Network, Miles expressed doubt that such strategies were even on their way because of the way the market is currently structured.

Miles tells Mortgage Strategy: “The tendency for interest rates to be higher for many existing customers than new borrowers – the cross-subsidisation issue – is the opposite of what risk-based pricing would give you as existing borrowers tend to be lower risk.”

Other delegates at the round table discussion were more positive with the CML expressing the belief that the forthcoming Basle II legislation would encourage more sophisticated risk-based pricing.

And AMI director Chris Cummings says LTV calculations will continue to be phased out in favour of affordability calculations. He says: “Affordability is a far more insightful lending method as it takes into account incomings, outgoings and unsecured debt. LTVs don&#39t do that and are a less sound basis for lending. The market has matured and the debate should focus on affordability.”

• Also last week, Professor Miles defended the findings of his report into longer term fixed rate mortgages in the UK in an interview for Money Marketing Live with Mortgage Strategy deputy editor Rosemary Gallagher.

In the interview to be screened on May 6 at London&#39s Olympia, Miles says he hopes several of the 20 recommendations in his report, The UK Mortgage market: Taking a longer term view, will be implemented following consultations by the government and the FSA.

But he adds it is not up to him to give any indications of how long the consultation might take, saying he has fulfilled his role by delivering his report and it is now up to the Treasury and FSA.


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