Underlying profit at Paragon increased 45.9% on 2009 to £66.1m, as the group reported strong customer retention and the improving credit quality of its portfolio.

It said Paragon Mortgages long-awaited return to buy-to-let lending in September this year, after it secured a revolving £200m warehouse facility with Macquarie Bank, has placed the group in a strong position for continued growth in 2011.

The quality of Paragon Mortgages’ portfolio has continued to improve, it said, with arrears levels steadily reducing and its redemption rate falling to 3% for the year compared to 7.1% in 2009.

Paragon’s charge for impairment provision dropped 40.5% on 2009 to £39.2m, reflecting the improvement in arrears performance, as low interest rates increased affordability for customers.

Three month plus arrears in buy-to-let for the year end were 0.83%, compared with the market average of 2.45% as recorded by the CML.

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In its secured loan book, the percentage of accounts with arrears of two months or more increased from 7.94% in 2009 to 9.36% in 2010, which it said reflected both the effects of economic conditions on borrower performance and the contraction in the size of the portfolio.

However, its arrears performance remains favourable with an industry average of 24.4% as recorded by the Finance & Leasing Association.

In addition, Paragon’s cash position has remained strong over the course of the year, with free cash balances increasing to £147.8m for the year end, up from £84m last year. This followed the payment of £20.7m for the purchase of a portfolio of buy-to-let mortgages in September 2010 and the purchase of the group’s securitisation debt.

Paragon said that the balances, together with net cash receipts, would help its future lending and portfolio purchases.

John Heron, managing director of Paragon Mortgages, said: “We are very pleased with these strong results. Behind them is 15 years of high quality, prudent lending. We have only just started new lending and had a great response from both landlord investors and mortgage intermediaries. The year ahead is about building that initiative up and getting back to a significant position in the market.

“It is important to us to build something sustainable that is here for the long term. What that consists of is a fabulous performance in arrears, which is one of the lowest in the industry, and the fact our customers stay with us because we give them great deals. That works because our margin has been maintained because of our funding strategy.”

He said it was confident it could access the structured finance markets, which remains central to its business model, and added that the group had had extensive conversations with investors over the last several months.

Heron added: “Application flows have been very encouraging and reflect the diversity of propositions in the professional landlord market. Together with applications for regular self-contained properties, landlords also clearly value our criteria for Houses in Multiple Occupation and multi-unit blocks.

“There is a shortage of lenders with expertise in these more complex buy-to-let cases, but our experience in this area means we can consider a much wider range of properties and look at cases on their individual merits.”