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Buy-to-let lender Paragon weathers housing storm

By Daily Mail Reporter
Updated: 06:02 EDT, 29 July 2009

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Buy-to-let lender Paragon said record low interest rates and a lack of competition was helping it weather the housing market slump.

The Solihull-based company (up 14.5p at 102p yesterday) recorded a 20% fall in pre-tax profits for the first nine months to £31.4m.

But, it said impairment losses on sour loans in the third quarter were lower than in the first half.

The company, which is only advancing loans to existing customers, has also attempted to bolster its balance sheet by buying up £23.2m of its own debt in the market at around half the cost.

This will allow it to book an extra £11.5m in second half profits.

'Whilst there have been some recent signs of improvement in the funding markets, we do not expect a significant reopening in the near future, hence we expect competition to remain subdued and mortgage redemption rates to remain low,' the group said.

With rates likely to stay at 0.5% until the end of 2009 at least, Paragon also anticipates a 'positive impact on borrower payment performance'.

But some analysts expressed fear of what could happen to arrears when interest rates do rise.

Numis analyst James Hamilton said: 'With buy-to-let investors paying interest only mortgages linked to the 0.5% base rate at the moment they can afford to service their minimal interest obligations.

'These investors are however the living dead as it is implausible that the income from these properties will ever be enough to fund principal repayments.

He added: 'As interest rates return to more normal levels we would expect landlord defaults to rise and impairment to surge.'

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