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Paragon expands profits amid new buy-to-let boom

By This Is Money
Updated: 06:24 EDT, 24 November 2010

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Mortgage lender Paragon has seen its profits jump 32% as the buy-to-let market returns to health.

Recovery: Frustrated homebuyers are staying in rented property for longer, boosting the buy-to-let market

The firm said landlords are seeing high demand from people who want to buy their own homes but are finding it hard in the current depressed market. These tenants are renting in larger numbers and for longer periods, claims Paragon.

Paragon's shares rose 2.2p to 161.7p after it unveiled a rise in pre-tax profits to £71.8m from £54.3m a year earlier.

The group withdrew from the buy-to-let market in February 2008 due to higher lending costs during the financial crisis - but it is now back writing new loans after securing a £200m funding facility in September.

With new lending previously limited to further advances to existing borrowers, the company's buy-to-let portfolio was £8.3bn at the end of September.

Paragon said the credit performance of its mortgages over the year had been 'exemplary', with the rate of three-month plus arrears in buy-to-let standing at 0.83%, against the market average of 2.45%.

The resulting 40.5% fall in provisions for bad debt to £39.2m contributed to its rise in profits.

The company added: 'Low interest rates have increased affordability for customers, reducing the incidence of new arrears and assisting the correction of past arrears. The loan books continue to be carefully managed and credit performance remains in line with our expectations.'

In September, Paragon became the first independent, non-deposit taking lender to come back to the market since the credit crunch when it announced a £200m debt facility from Macquarie Bank.

The so-called warehouse facility gives Paragon the money it needs to write new loans up-front, until it has a large 'bundle' of mortgages, which it will then securitise, raising fresh funds to lend.

It hopes the new facility will help enable it to write around £1bn of new mortgages a year in the future as it looks to re-establish its position as the leading mortgage lender to experienced professional landlords.

Paragon also has a consumer finance division, which has been limited to a small number of further advances to existing customers.

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