Paragon increased lending to private landlords by almost two-thirds in the first half of the specialist mortgage lender’s financial year as the buy-to-let boom continued.
The company said new buy-to-let mortgages rose 65.7% to £446m in the six months to the end of March. Paragon’s so-called pipeline of new loans awaiting completion more than doubled to £701m from £348m.
Profit before tax, excluding changes in the value of hedging arrangements, increased by 10.4% to a record £63.9m. The company increased its interim dividend by 20% to 3.6p a share.
Paragon was Britain’s biggest buy-to-let lender before the credit crunch. It stopped lending for two years after the crisis reached its peak in October 2008 but sprang back to life in 2010 to capitalise on demand from professional landlords.
With interest rates at a record low of 0.5% for more than six years and rents rising, many of those able to borrow have turned to property investment for an income. Those who stayed in the market when property prices fell during the crisis have so far been rewarded. Returns on buy-to-let property have outstripped shares, bonds and cash since the market took off in 1996, earning returns of almost 1,400%.Nigel Terrington, Paragon’s chief executive, said: “These results demonstrate how far Paragon has progressed in recent years as one of the UK’s leading specialist lenders. Considerable growth in buy-to-let lending volumes and strong momentum into the second half of the year, complemented by the launch of a number of additional products, have significantly enhanced the group’s franchise.”
Some economists have warned that Britain is in the middle of a property bubble that could burst when interest rates rise. The Bank of England warned a year ago that house prices could be heading for a crash in a rerun of previous booms and busts.
Paragon said provisions for loans at risk of non-payment more than halved to £3.5m from £7.5m a year earlier as new cases of loan arrears fell and customers made payments that were overdue. Rising house prices also protected existing borrowers from defaulting on their mortgages.
“The loan books continue to be carefully managed and the credit performance of the buy-to-let book remains exemplary,” Paragon said.
Many landlords who bought property before the financial crisis have mortgages that track the Bank of England’s base rate. As a result, their costs have plunged since rates were cut to 0.5% in 2009. Retirees with greater freedom to spend their pension pot under the government’s reforms also have the option of putting some of their money into property.