£1 billion aimed at buy-to-let professionals

Buy to let specialist lender Paragon Mortgages has announced a 32% rise in profits as the firm looks to reassert its former position as a major funder of professional landlords by lending £1 billion.

After nearly three years away from the market, the lender has opened for new business after securing £200 million backing from the Macquarie Bank in Australia.

Paragon stopped lending in February 2008 after credit dried up in the recession.

Paragon said landlords were witnessing high rental demand as the current depressed state of the housing market has resulted in would-be homebuyers renting in larger numbers and for longer periods because they cannot obtain a mortgage or raise funds for a deposit.

The firm had an £8.3 billion lending book at the end of September – when new lending restarted. Credit performance of the mortgage book over the year was "exemplary", with three-month plus arrears in buy to let standing at only 0.83% against a market average of 2.45%. The resulting 40.5% fall in provisions for bad debt to £39.2 million contributed to a rise in pre-tax profits to £71.8 million from £54.3 million in the previous year.

"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," said a statement from the company.

Paragon plans to lend the £200 million and then securitise the loans as an asset to borrow further funds to contribute towards a £1 billion lending target for the year to professional buy to let landlords.

"While the UK economic environment remains challenging with the outlook for growth, unemployment and house prices all uncertain, the group enters the new financial year with a term-funded, high quality loan book," said a Paragon spokesman. We expect that our new lending programme will expand over time and will be complemented by increasing opportunities to acquire loan portfolios."

John Heron, Paragon Mortgages MD, says, "We have been very encouraged by the initial phase of our return to new lending and have had a great response from both landlord investors and mortgage intermediaries. This underlines the strength of Paragon's reputation in the buy-to-let market and also the shortage of funding in the sector, particularly for landlords with more complex needs.

"We have managed the roll-out of our distribution network prudently, carefully and successfully to ensure that we could effectively manage business flows and maintain our customer service levels. We are confident that we have comprehensive intermediary coverage and we are working with the larger commercial finance specialist intermediaries, national mortgage advice firms and major regional intermediaries. We also have agreements in place or under development with the majority of major networks."

Commenting on landlord investor demand, John added, "Application flows have been very encouraging and reflect the diversity of propositions in the professional landlord market. Together with applications for regular self-contained properties, landlords also clearly value our criteria for Houses in Multiple Occupation and multi-unit blocks. There is a shortage of lenders with expertise in these more complex buy-to-let cases, but our experience in this area means we can consider a much wider range of properties and look at cases on their individual merits."

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