Paragon returns to new mortgage lending
The Paragon Group of Companies is delivering on its commitment to return to new lending and aims to expand choice and competition for professional landlords in the buy-to-let mortgage sector.
Lending strategy
It is Paragon's aim to return to its market-leading position in the buy-to-let sector, specifically targeting professional landlords. This is an area of the market currently underserved by buy-to-let lenders and one which Paragon is well-positioned given its expertise and experience in buy-to-let lending. Paragon will offer a range of buy-to-let products through the Paragon Mortgages brand.
The product range includes fixed rates starting from 5.3% and tracker rates starting from 4.3%. Paragon's lending criteria mean it can offer professional landlords facilities that are not widely available elsewhere, such as limited companies, multi-unit blocks and Houses in Multiple Occupation (HMOs).
Paragon will maintain a prudent and risk-averse approach to new lending, placing greater value on long-term customer relationships, credit quality and profitable products rather than simply market share. Paragon underwrites each application on an individual basis, rather than solely relying on computer scoring, employs its own team of surveyors to assess the property thoroughly and designs its products to appeal to good quality, experienced landlords. This strategy has proved successful for Paragon and is a driving factor in the excellent credit performance of the Group's assets.
The number of accounts more than three months in arrears across Paragon's portfolio of buy-to-let mortgages has continued to fall and is currently just 0.86% of the book. This is significantly below buy-to-let market peers and also the wider mortgage market.
Products
Fixed
Two-year fixed at 5.30% 2% fee 65% max LTV
Two-year fixed at 5.50% 2.25% fee 75% max LTV
Tracker
Two-year 4.30% (Libor + 3.5%) 2% fee 65% max LTV
Two-year 4.80% (Libor + 4%) 2.25% fee 75% max LTV
Five-year 4.55% (Libor + 3.75%) 2% fee 65% max LTV
Five-year 5.05% (Libor + 4.25%) 2.25% 75% max LTV
The buy-to-let market and the private rented sector
Competition in the buy-to-let mortgage market has reduced dramatically since the start of the credit crunch, and the sector has been dominated by just two lenders, accounting for up to 80% of new business written. The number of available buy-to-let products has fallen from over 3,600 in July 2007 to approximately 280 today. Many of these products are focused towards the novice or small-scale landlord, and fail to cater for professional landlords' more complex financial needs.
Council of Mortgage Lenders figures show that buy-to-let lending hit its lowest point since 2001 by both value and volume last year, and this reduction in lending is starting to feed through to supply constraints in the availability of private rented sector property. The Association of Residential Letting Agents revealed in July that 70% of its members reported more tenants than available properties. According to The Royal Institution of Chartered Surveyors' UK Lettings Survey, this supply constraint is starting to result in rental inflation.
Funding facility
Paragon has arranged funding via a new warehouse facility and will resume buy-to-let lending with immediate effect. These will be the first new buy-to-let mortgages that Paragon has offered since February 2008 when it withdrew from the market due to conditions in the global financial markets.
Macquarie Bank is providing the £200 million warehouse facility. The facility's revolving nature will mean it can be used repeatedly to pre-fund Paragon's future securitisation deals, giving it a sustainable and secure funding platform.
Trading
In addition to announcing its return to new lending, Paragon also today gave a trading update for the eleven months to 31 August 2010. The Board expects operating profits for the year to 30 September 2010 to be above the current market consensus forecast (£58.2 million), and around the upper end of analysts' current expectations, which range from £40.5 million to £65.0 million.
Commenting on today's announcement, Nigel Terrington, Paragon Group's Chief Executive, says: "Despite the difficult environment over the past three years, Paragon has remained steadfast in its commitment to return the business to new lending when conditions permitted.
"Competition in the mortgage market has been sorely lacking over the last couple of years. Nowhere is this more evident than in the private rented sector where tenant demand is strong and expected to grow. Competition is vital for a healthy and vibrant buy-to-let market and we aim to provide that competition.
"Professional landlords with more complex buy-to-let requirements, such as HMOs or multi-unit blocks, have been particularly underserved and we will specifically target this market segment. Supply of private rented sector property is already under severe strain, which is leading to rental inflation. It will be professional landlords who stimulate the growth of the sector and we want to be there to help them achieve this."