Buy-to-let  

Paragon profits up despite 'subdued' mortgage market

Paragon profits up despite 'subdued' mortgage market

Paragon saw its profits increase by more than 11 per cent to £77.2m despite a "subdued" mortgage market.

The FTSE 250 company, which is currently transitioning its business model from a wholesale funded buy-to-let lender to a more broadly-based bank, saw mortgage lending go up by 22.7 per cent to £721m in the six months to the end of March 2018.

This was despite Paragon warning that the mortgage market was "finely balanced", with "subdued" levels of activity.

It said: "This mixed picture results from the interaction of opposing economic forces, with the effects of low interest rates, government intervention to support home ownership, high employment and improving wage levels being offset by regulatory moves to tighten credit conditions, squeezed household incomes, pessimism about the impact of potential interest rate increases and economic uncertainty more broadly."

Paragon also saw its buy-to-let lending pipeline increase by 7.6 per cent to £787.6m despite a period of "sustained regulatory intervention", including changes to tax and stamp duty affecting landlords and greater underwriting requirements for portfolio landlords.

The bank said it was seeing "clear evidence" of a polarisation between portfolio landlords and those with single properties, with the proportion of portfolio landlords operating through corporate structures also continuing to increase.

Ultimately Paragon claimed these changes would benefit specialist buy-to-let lenders such as itself as its competitors were not offering portfolio landlord propositions.

The bank's deposit balances increased by 82.6 per cent to £4.29bn and its net interest margin -  the difference between the interest generated from mortgages to that paid out on deposits - increased from 2.09 per cent to 2.16 per cent, and Paragon is expecting it will increase by another 5bps by the end of the year.

Nigel Terrington, chief executive of Paragon, said: "The success of our changing business model has enabled the group to support an increasing number of customers, whether they be landlords, small businesses or consumers.

"We are building a leading specialist retail bank to deliver outstanding products and services to our customers with strong and sustainable returns to our shareholders. The group has delivered much in recent years on this journey but considerable opportunities exist to build on this progress for the future." 

Paragon said it would continue to develop its businesses, by both increasing the reach of its existing offerings and adding further product lines or specialisms, either organically or through M&A activity.

damian.fantato@ft.com