Brokers: Paragon has to “prove it’s no Dunfermline”

Sarah Davidson

May 18, 2010

Earlier this morning Paragon reported an 84.3% increase in pre-tax profits to £29.3 million in its half-year results for the six months to 31 March 2010. The lender also reported strong customer retention and low arrears levels in its buy-to-let portfolio.

Nick Baxter, director at mortgage club Mortgage Promotions, said he thought it was “highly probable that Paragon would be lending again within the year” but that to get funding from investors the lender was “going to have to make sure they get across the message that they’re no Dunfermline”.

John Heron, director of mortgages at Paragon, said the lender had seen strong financial performance over the past six months.

He added: “Arrears across the £8.5 billion buy-to-let portfolio, including accounts where a receiver of rent has been appointed, stood at 1.17%, which is considerably better than the comparable Council of Mortgage Lenders’ figure of 2.71% for the buy-to-let industry as a whole.”

The buy-to-let lender is actively managing its mortgage book, but said it does not have financing in place to fund new lending.

Heron said: “Discussions are progressing with a number of parties to determine whether suitable financing arrangements can be agreed to support new lending.

“We hope to be able to update the market in due course, but as these discussions are still ongoing, we are unable to provide guidance over their timing or outcome.”

Heron said conditions in the wholesale funding markets continue to improve, which gave the lender cause for hope.

Baxter said: “Paragon was always a specialist buy-to-let lender which really understood how to underwrite loans. I’m sure that’s why their performance has been so good.

“There were too many lenders without a proper understanding of the buy-to-let market jumping on the band wagon in the good days, and the quality of business they underwrote was pretty poor on some occasions.”

Baxter reckons Paragon is in a good position to come back to the market.

He added: “Paragon is in a different league, but I would guess they’re facing the fallout from wider buy-to-let lending.

“They need to persuade the wholesale finance markets that theirs is a good quality investment, backed by knowledgeable underwriting based on more than just rental cover and LTVs. They must look at the borrower covenant as well.”

Mike Davis, head of mortgages at Sussex-based broker Skerrit Consultants, said Paragon had been holding meetings with a range of IFAs to gauge broker appetite for their offering.

He said: “I saw Paragon about two weeks ago and was given to believe they would be back in the market offering new lending this year. That would be very welcome news.”

And Colin Jackson, director of Essex-based broker Baronworth, said: “We very much hope Paragon will be back in the market in the near future, at competitive rates, LTVs and with an upfront fee.”

Heron acknowledged that investor demand for buy-to-let is robust and said: “A lack of available mortgage products is inhibiting the market’s growth, as Council of Mortgage Lenders’ figures recently demonstrated.”

There are currently fewer than 300 buy-to-let products currently available, compared to over 3,500 in August 2007.

Heron added: “Paragon is on a solid financial footing, with our assets match-funded to maturity and strong operational cash flow.

“We have successfully steered the group through a period of very difficult market conditions and are in a strong position to take advantage of any market opportunities that present themselves.”

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