According to Paragon’s latest results, the majority of business came from specialist buy-to-let at 98.8 per cent with £22.3m emanating from non specialist buy-to-let.
The firm said that the slight fall in lending was due to its “pipeline hedging policy” which allowed “mortgage offers which were in process at the start of the year to be satisfied”. It noted that this was notable as many lenders at the time had to withdraw offers due to rising market interest rates.
Paragon said that new advances and strong customer retention of over 80 per cent at product maturity, a rise from over 70 per cent in 2022, has contributed to a mortgage loan book growth of 4.7 per cent to £14.9bn. This is an increase from £14.2bn in 2022.
The lender said that “digitalisation” was increasingly having an impact across the business, with its buy-to-let mortgage maturities portal underpinning stronger year-on-year customer retention at maturity.
It added that there was a post-completion portal in place for buy-to-let customers and “further functionality” being developed across the business and delivery planned for 2024.
The lender said that its new business pipeline stood at £594.6m, which compares to around £1.3bn at year-end last year. It noted that the reduction shows “tightening of the market” and an “enhanced approach” to managing its pipeline.
Arrears levels inch up
The company continued that buy-to-let three-month plus arrears stood at 0.34 per cent, which is up from 0.15 per cent last year but below the industry average of 0.69 per cent.
Paragon confirmed the closure of its mortgage brokerage subsidiary TBMC following a “review of buy-to-let distribution strategy”. It noted that the closure had led to the writing off of goodwill and other intangible assets along with other costs, which came to £2m.
The firm added that it had conducted an operating model review earlier in the year, focusing on hybrid working and examining the group’s management structure. The conclusion in September led to 53 people leaving the business, with the cost of exercise pegged at £2.6m and was fully expensed in 2023.
Paragon’s underlying profit before tax came to £277.6m, up from £221.4m in 2022.
Specialist sector ‘materially more resilient’
Looking ahead, Paragon said that while the buy-to-let market had “slowed significantly” in 2023, the specialist sector had been “materially more resilient”.
It explained: “While it is clear that the changing economic environment and regulatory landscape has caused some landlords to step away from the private rented sector, the group’s experience is that this reaction is concentrated amongst some smaller non-specialist amateur landlords, while its specialist customers remain committed to the sector.
“The experience of the group’s customers, their level of involvement and the diversification of their income streams across properties make them less vulnerable to cash flow shocks in the event of a downturn and better able to cope when faced with an adverse economic situation impacting them or their tenants.”
The company continued that it had delivered “stable and steady growth” for many years and the “combination of its strong franchise, longevity of data, planned delivery of IRB in fine-tuning capital requirements and increasingly digitalised operations combine to provide opportunities to maintain and accelerate this progress”.
Richard Rowntree (pictured), Paragon Bank’s managing director of mortgages, said: “We delivered a strong set of results despite the challenging market conditions. New lending was broadly in line with the previous year, which reflects our hedging policy designed to protect customers as well as our focus on portfolio landlords who remained active in the market.
“Whilst the overall market was down, we continued to see healthy demand for more specialist buy-to-let propositions, such as Houses in Multiple Occupation, which we are well-placed to serve.”
He added: “I’m also pleased with our strong retention performance, which has been driven by the performance of the book written post-2010. We launched several initiatives aimed at improving retention of customers two years ago, so we entered this period with good processes in place to serve customers and brokers.”
