The move is a strategic vote of confidence in the development finance market as the bank also buys £226m of development finance loans from a series of special purpose vehicle companies (SPVs) controlled by Oaktree.
Paragon said it ‘considers the development finance market to be particularly attractive, with strong long-term growth prospects.’
It added: “The market benefits from strong underlying demand based on the shortage of housing in the UK and requires a specialist focus on customer requirements, risk assessment and in-life portfolio management.”
Paragon will back Titlestone’s lending ambitions with funding lines and the deal continues Paragon’s plans to diversify through organic startups and acquisitions.
Paragon began residential development finance lending in 2016 and has advanced £118m with a pipeline of £130m and has outstanding balances of £76m.
Titlestone and its experienced management team has committed over £2.2bn across more than 330 developments and in the 12 months to June this year it advanced £27m of new lending with a pipeline of just under £250m.
Paragon said: “Small and medium-sized house builders account for 41% of all new builds. However, access to finance remains a major barrier for the majority of SME house builders as larger lenders continue to retrench from the market.”
Oaktree is selling a further portfolio of loans to CarVal Investors, which represents 49% of total gross loan balances at completion. Paragon will also service this second portfolio.
People and management
The Titlestone team will be combined with Paragon’s existing residential development lending activities under the leadership of Robert Orr, managing director of Titlestone and support services will be provided from Paragon’s existing operations.
Nigel Terrington, chief executive, said: “The UK development finance market represents an excellent long-term opportunity and Titlestone will enable us to accelerate our growth in this area.”
Headquartered in Solihull, Paragon Banking Group is a FTSE 250 company with lending products covering mortgages, asset finance, motor finance, development finance, and structured lending.