Paragon has reported buy to let (BTL) lending halved in the last three months of 2016, as changes to regulation bit.
Lending fell to £185.2m in the last three months of 2016, down from £401m the previous year, according to the firm's latest financial statements.
However, lending was up 12 per cent quarter-on-quarter, and the group's new deal pipeline has doubled quarter-on-quarter to £639.6m, fueling hopes of a BTL rebound in 2017.
"We have made a strong start to a year that will see the group continue its transition to a lending and operational model that is orientated around Paragon Bank," said Nigel Terrington, the group's chief executive.
"Lending across all divisions and the strong growth in the buy-to-let pipeline bodes well for the year as a whole”.
The year-on-year dip in BTL lending is believed to be due to an onslaught of new property regulations.
In April 2016, the new stamp duty laws came into effect, meaning that most new landlords will face higher taxation.
On 1 January 2017, new regulations by the Prudential Regulation Authority (PRA) came into effect, forcing landlords to comply with stricter interest coverage ratio tests and stress tests.
"Throughout the final months of 2016 the buy-to-let market saw lenders tightening criteria ahead of the PRA underwriting changes," a Paragon spokesperson said.
"[We] had implemented the majority of these changes a year ago, in January 2016, and, as market criteria tightened during the last quarter, the Group’s pipeline continued to grow from its low point in the summer.
"It is too early to determine the full extent of the PRA changes on the market, and the further changes due later in the year, however the strong pipeline, positions the Group to achieve its anticipated new business volumes for the year."
UBS brokers said that they saw this as "evidence of Paragon starting to take market share as competitors find themselves catching up on underwriting standards in advance of the PRA's BTL underwriting scheme."
Adrian Kidd, financial planner at Radcliffe & Newlands, said that Paragon's outlook was not necessarily a sign of things to come for the BTL sector.
"There was a huge amount of interest before the stamp duty hike and that would have tapered off before April 2016," he said.
"But it's only going to get harder for this particular asset class - particularly for newcomers to the market.
"If I had £500,000 at the moment, I would not put it in an investment property. It's quite a hard place to invest at the moment."
While the Paragon Group specialises in buy-to-let mortgages, it has begun to diversify its offering, with Paragon Mortgages recently entering the residential market for the first time.
