Paragon confident it will securitise

Sarah Davidson

September 28, 2010

The buy-to-let lender has secured a revolving warehouse facility of £200 million from Macquarie Bank which will renew if Paragon can securitise loans once they are made.

Heron said: “There are no guarantees – if the credit crunch taught us anything, that was it – but we’re confident on the basis of discussions we’ve had in the market that we can securitise good quality mortgages successfully.

“We never stopped talking to investors despite the fact that we weren’t originating new loans and I think investor confidence in Paragon is good because we have the benefit of being one of the most experienced securitisers of mortgages in the UK.

“I would say investors are positive. Paragon deals in the past performed and we weren’t subject to some of the gruesome headlines that some of our competitors were when the credit crunch hit. That quality is to the benefit of our customers and investors.”

Paragon’s back book of buy-to-let loans originated before February 2008 has performed better than the market average with the number of accounts more than three months in arrears across Paragon’s portfolio at just 0.86% of the book. This is below buy-to-let market peers and also the wider mortgage market.

Heron was reluctant to set a specific time scale on how long it would take the lender to originate £200 million buy-to-let loans, acknowledging that the market is still “relatively subdued”.

He added: “We have to remember we’re returning to the market after a period of absence. We haven’t stopped talking to brokers but we do need to re-present our offering to them. I do think we benefit from being an established name though and I think we’ve maintained an excellent reputation through the credit crisis by remaining profitable and maintaining extremely low arrears.

“We plan to continue our careful underwriting of individuals and properties and I think that means there is a good deal of warmth in the market for the brand. But we have to get back out there and justify our place in market.”

Paragon is lending from today via a limited distribution panel of brokers including John Charcol, London & Country, Mortgages for Business, Professional & Commercial, Savills and TBMC. Heron says there will be a progressive roll-out and he expects networks to come on board as the business develops.

Heron also expects direct business to make up between 10% and 20% of business – similar to Paragon’s pre-credit crunch lending mix.

“We have to be careful we don’t overburden ourselves,” he said. “It’s important we can service the business we receive to a decent standard but we will extend distribution over next few weeks.”

Alan Cleary, managing director of Precise Mortgages, said it was good news for the market that Paragon was back in the game.

“The buy-to-let market was disproportionately affected compared to the prime market, despite better performance on arrears, so it’s really good to see a good injection of liquidity into this market. I think everybody wants more competition – it will make it more sustainable and more legitimate,” he said.

However, Cleary added that this was unlikely to be the beginning of a trend.

“I think everyone was expecting Paragon to come back so it’s not a big surprise and given its track record in the past, you’d have expected it to be one of the first to get new funding. I don’t think it represents a trend of new lenders coming into the market but it does represent the fact that good lenders will find a way to get funding.”

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