Related provisions for BIPRU 3.4.59

1. (1)

   The application of MIPRU 4.2F.33 R may be illustrated by an example. Where a first-charge mortgage exposure of £50,000 from another lender is secured on residential property in the United Kingdom that satisfies the criteria in MIPRU 4.2F.4 R to MIPRU 4.2F.29 R and the value of that property is £100,000, then a firm with a second-charge mortgage of £60,000 on the same property may treat £30,000 of that exposure as fully and completely secured and risk weight it at 35%, treat a further £20,000 as unsecured and risk weight it at 75%, and risk weight the remaining £10,000 at 100%. A diagrammatic illustration of this example is in (2).

2. (2)

   A diagrammatic illustration of the example in (1)

   Property value	Exposure and risk weightings	Example
   	£10,000 of second-charge - risk weighted at 100%	• Remaining second-charge mortgage, i.e. £10,000
   £100,000	£20,000 of second-charge - risk weighted at 75%	• Second-charge mortgage up to maximum of 100% of property value, i.e. £20,000
   	£30,000 of second-charge - risk weighted at 35%	• Second-charge mortgage up to maximum of 80% of property value, i.e. £30,000
   	First-charge mortgage (£50,000)	• Other lender has first-charge over property with outstanding loan balance of £50,000

The application of value adjustments to either the secured or the unsecured component of an exposure secured on residential property may be illustrated on the basis of a £110,000 loan on a property valued at £100,000, where £80,000 of the loan is secured, £30,000 of the exposure is unsecured and a value adjustment of £20,000 is taken.

1. (1)

   Value adjustment applied to unsecured component:

   1. (a)

      Value adjustment of £20,000 taken on £30,000 unsecured exposure.

   2. (b)

      Value adjustment exceeds 20%, so the firm should risk weight the remaining £10,000 unsecured exposure at 100% (as per MIPRU 4.2F.55 R).

   3. (c)

      The risk weight to be applied to the secured exposure of £80,000 is 100% (as per MIPRU 4.2F.51 R).

2. (2)

   Value adjustment applied to secured component:

   1. (a)

      Value adjustment of £20,000 taken on £80,000 secured exposure.

   2. (b)

      Value adjustment exceeds 20%, so the firm should risk weight the remaining £60,000 secured exposure at 50% (as per MIPRU 4.2F.51 R).

   3. (c)

      The risk weight to be applied to the unsecured exposure of £30,000 is 150% (as per MIPRU 4.2F.55 R).

3. (3)

   A diagrammatic illustration of how MIPRU 4.2F.56G (1) and MIPRU 4.2F.56G (2) operate is as follows:

   Value adjustment applied to unsecured component (MIPRU 4.2F.51 R)	Risk weightings	Exposure	Risk weightings	Value adjustment to secured component (MIPRU 4.2F.55 R)
   £20,000		Unsecured component of £30,000	£30,000 risk weighted at 150%
   	£10,000 risk weighted at 100%
   	£80,000 risk weighted at 100%	Secured component of £80,000		£20,000
   			£60,000 risk weighted at 50%