Soaring buy-to-let lending has driven underlying profits at Paragon up 10.2 per cent to £134.7m - from £122.2m in 2014 - according to the lender’s results for the year ended 30 September.
The Paragon Group of Companies saw new buy-to-let lending up 102 per cent to £1.32bn - from £656.6m last year - while the buy-to-let pipeline rose 72.1 per cent to £713.7m - from £414.8m in 2014.
Trading activity during the year for the Paragon Mortgages brand was “very strong”, with the segment contributing £94m to underlying group profit - compared to £80.5m in 2014 - an increase of 16.8 per cent.
At the end of September, the group’s buy-to-let portfolio stood at £9.36bn, 9 per cent higher than the £8.59bn reported a year earlier.
The results gave some explanation on the drivers behind the bank’s buy-to-let growth, noting a range of social, demographic, political and economic factors continue to drive strong growth in private renting, alongside general issues of affordability in the owner occupied sector.
“Significant amongst these over the year have been the impact of the FCA’s Mortgage Market Review, high levels of migration to the UK and the continuing challenge of improving the supply of housing in the UK in the face of population growth and the rate of household formation.”
However, the statement also pointed out the policy environment for the private rented sector has become more challenging following the Summer Budget announcement on changes to the tax regime for rented property.
The changes will result in landlords only being able to claim relief on finance costs at the basic rate of tax, currently 20 per cent, along with the cessation of the ‘wear and tear’ allowance.
“Research to date by the industry has indicated that the changes will have a muted impact on the motivation for landlords to invest although some reduction in the rate of growth is anticipated and some landlords are expected to look to increase rents to compensate for their increase in costs.
“We also expect a number of larger scale landlords to transfer their properties into a corporate structure, an area of the market in which the group has considerable experience and where there is less competitor capability,” the update added.
Nigel Terrington, chief executive of Paragon, said progress made during 2015 leaves the group well placed to continue to expand its business through greater levels of organic growth and additional product diversification.
“There is a strong demand for the group’s products across its various divisions and despite challenges that may arise from increased regulation and taxation changes, further growth is expected to continue in the future.
He added that a larger and more diversified funding base supports growth, together with giving capacity for other potential acquisitions and capital management activity.
peter.walker@ft.com
