Paragon Bank reported a important surge in its buy-to-let (BTL) lending, highlighting the continued strength of the rental market. New BTL loans jumped 25.1% to £812.2 million in the first six months of the year, compared to the same period 12 months prior. This increase underscores the ongoing demand for rental properties, even amidst broader economic uncertainties.

Mortgage Loan Book and Pipeline Dynamics

The bank’s mortgage loan book saw a 4.5% increase, reaching £13.7 billion by the end of March. BTL mortgages constitute the “overwhelming majority” of this portfolio, according to the bank’s first-half trading statement. However,the BTL pipeline experienced a decrease,coming in at £662.2 million, down from approximately £870 million a year earlier.

Paragon Bank attributed this pipeline reduction to its new landlord origination system, which provides enhanced filtering on entry, so pipeline comparisons are not like-for-like. This system allows the bank to decline inappropriate cases earlier in the process, reducing the size of the new lending pipeline at any given time.

Arrears and Impairment Charges

While BTL arrears levels increased to 51 basis points from 38 bps on Sept. 30, this figure remains lower than the 68 bps recorded a year ago. Furthermore, impairment charges across all mortgage lending decreased to £5.1 million, down from £8.7 million 12 months prior, indicating improved asset quality.

Executive Insights

Louisa Sedgwick, managing director of mortgages at Paragon Bank, emphasized the robust demand in the BTL market. A 25% increase in new lending shows the underlying strength of demand in the BTL market. She further noted, There remains an acute mismatch between supply and demand in the rental market and landlords are responding. This statement highlights the critical role landlords play in addressing the housing shortage.

Commercial Lending and Advancement Finance

Beyond BTL mortgages, Paragon Bank also offers a range of other financial products, including small business, property development, and motor loans. New commercial lending saw a slight decrease of 3.7%, totaling approximately £570 million, compared to the previous year. Conversely, the development finance pipeline experienced a significant boost, ending the period 20.7% higher at around £810 million.

Financial Performance and outlook

The firm reported a pre-tax profit increase of 26.7%, reaching £140.1 million, compared to the previous year. For the full year, the lender maintained its mortgage lending guidance, projecting between £1.6 billion and £1.8 billion. Nigel Terrington, chief executive of paragon Banking Group, stated that the business is well placed to navigate the evolving external environment and remain optimistic about the remainder of the financial year and beyond.

Additionally, the business allocated £6.5 million to address potential motor commission claims.