Buy-to-let mortgage lender Paragon forced to halve new loans

01 April 2008 / by Rebecca Sargent
Buy-to-let mortgage company, Paragon has become the latest victim of the credit crisis, admitting it expects to halve the amount of loans offered.

The figures were reported in its latest trading statement and come shortly after the company was forced to resort to a rights issue, where shareholders raised £287 million before costs just to keep the company above water.

Paragon shares have fallen by almost 90 per cent in the last year and its latest trading statement shows it is a shadow of its former, prosperous self. A combination of current market conditions and a lack of opportunities for warehouse financing have put Paragon in an unfortunate position.

As a result of the company’s reduction in new business, Paragon announced that redundancies were on the cards, stating that "the Group headcount is expected to be some 30 per cent lower than at the beginning of the financial year."

Despite this bleak outlook, Paragon seemed determined to look on the bright side, claiming that "Whilst sentiment in the housing market has deteriorated in recent months, the private rented sector remains strong."

According to meant Paragon buy to let mortgages, rents are on the rise having shot up by 2.4 per cent in the last month. The strength of the rental market is, Paragon claims partly due to the current state of the housing market, but its strength does offer a glimmer of hope for buy-to-let mortgage lenders like Paragon.

In its trading statement, Paragon stated, "Our view remains that the long-term prospects for the private rented sector remain strong. The credit environment remains difficult, impacting the workings of the money, banking and capital markets.

"We continue to expect a return to market stability and to more normal lending activity by the Group in due course."

Information from its latest Buy-to-Let Index supports the strength of the rental market, showing that the sector is dominated by large scale investors who are not easily scared by temporary financial turmoil.

John Heron, Paragon’s director of mortgages said: "The message is clear – experienced landlords continue to regard property investment as sound business.

"They hold their property investment assets for more than ten years, and decide to buy or sell based on sound commercial considerations rather than short term signals in house prices or economic sentiment" he concluded.

© Fair Investment Company Ltd