Demand for buy-to-let lending boosts Paragon Bank
Paragon Banking Group reported a strong start to the financial year on the back of higher lending to buy-to-let landlords.
In a trading update covering the three months to December, the FTSE 250-listed lender said its net interest margin (NIM) was running ahead of expectations while business volumes were in line.
NIM measures the gap between interest received on loans and rates paid for deposits.
Paragon, based in Solihull in the West Midlands, is a major provider of loans to professional landlords with at least four properties. It also lends to medium-sized housebuilders seeking loans up to £35m.
New lending across the quarter totalled £677.4m, compared to £610.7m in the first quarter of 2024.
Buy-to-let lending totalled £432.2m in the quarter, up from £336.3m last year, while commercial lending advances fell to £254.2m from £274.4m previously.
It said the fall in commercial lending was “primarily a result of timing differences in our structured lending business with the other business lines performing strongly”.
Paragon’s buy-to-let pipeline at the end of the quarter stood at £691.9m, nearly 24 per cent higher than a year earlier.
It said the loan book remained solid, with the proportion of borrowers in arrears of more than three months 13 basis points lower than in December 2023.
“The first quarter of our new financial year has continued to see good progress with encouraging new business flows and margins running above expectations,” Nigel Terrington, the bank’s chief executive said.
“The group remains confident in the guidance given for the full year and our strong capital levels mean we are well-positioned to continue delivering strong returns for our shareholders and further support for customers,” he added.
The bank’s guidance for the full financial year – covering NIM, new business volumes, costs and return on equity – remained unchanged.
Analysts at Investec said it was a “good update”, noting the bank’s margins were “particularly encouraging”.
The buy-to-let market has been put under pressure in the past couple of years due to higher interest rates, which has forced more landlords out of the market.
But figures released yesterday by UK Finance showed that buy-to-let lending was 8.9 per cent higher in the third quarter of last year compared to the same period a year earlier.