By Lars Mucklejohn
Paragon Banking Group, one of Britain’s leading buy-to-let mortgage lenders, has reported a surge in profit and boosted its share buyback programme, despite a drop in home loan volumes as higher interest rates put off borrowers.
The FTSE 250 firm posted a pretax profit of £110.6m for the six months ending on 31 March 2024, up 138 per cent from £46.4m in the same period last year. On an underlying basis, profit rose 13.5 per cent to £146.3m.
Paragon announced a further £50m share buyback to reward investors, taking its full-year buyback programme to £100m. The bank has returned more than £1bn to shareholders through buybacks and dividends since 2015.
The group’s net interest margin (NIM) – measuring of the gap between interest received on loans and rates paid for deposits – came in 0.24 points higher year-on-year at 3.19 per cent.
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 typically seeking loans between £5m and £10m.
The group said that, as expected, lending volumes were lower year-on-year during the six months. Its buy-to-let new advances dropped 36 per cent to £649.3m from £1.02bn. Growth in its SME division helped Paragon’s commercial lending volumes tick up £15.4m to £589.8m.
“There has been a strong recovery in customer demand with new business pipelines materially above
the levels seen at the year-end, improving the outlook for lending volumes for the rest of this year,” said Nigel Terrington, who is approaching his 30th year as Paragon’s chief executive.
The group now expects mortgage and commercial lending to come in at the higher end of its previously guided range for the full year, at £1.4bn to £1.6bn and £1.1bn to £1.2bn respectively.
It also forecasted its NIM to come in higher than the previously guided range of between three and 3.1 per cent.
Buy-to-let mortgage specialists spent much of last year dealing with fears of a major downturn in the housing market as cost-of-living pressures and interest rate hikes from the Bank of England caused some landlords to either sell their properties or pass on higher rental costs to tenants.
The number of UK buy-to-let mortgages falling into arrears surged 18 per cent in the last three months of 2023, according to banking trade body UK Finance, amid high rates and stricter regulation.
During the same period, the value of new buy-to-let lending more than halved as demand for new loans dried up. Arrears remained flat in the first quarter of 2024.
Paragon raised its impairment charge by £2.8m to £10.3m, which it said largely reflected an increased number of receiver of rent appointments on legacy buy-to-let mortgage accounts, as well as higher-for-longer interest rates and cost of living pressures.
Paragon also offers savings accounts, with its deposit book growing 24 per cent to £14.8bn over the period, which it said provided strong liquidity.
A strong set of results in December kickstarted a rally that has seen Paragon’s share price surge 57 per cent to date.
