Speaking to Mortgage Solutions, Nigel Terrington (pictured), chief executive of Paragon Bank, said: “I’m optimistic about the buy-to-let market. I think we’re in a kind of a weak part of the economy, but I think you can see that the professional landlord has been very resilient, and I expect that resilience to continue.”
He continued that he thought professional landlords would look at the current environment as a “buying opportunity”.
Terrington added that housing prices being a bit softer and rental yields being “strong, if not stronger” and mortgage costs “coming down”, would present “potential buying opportunities” to professional landlords.
“I think the conditions are kind of quite favourable for that,” he said.
Paragon expects to lend £1.3bn-£1.6bn in FY24
Terrington said that the June to September period was very challenging for the mortgage market, which had been a factor in its more muted new business pipeline as its results ended in September.
The new business pipeline was estimated at £594.6m for the period, which is down from around £1.3bn in the same period last year.
He said while the impact wasn’t quite at the level of the mini Budget it was “bordering on it”, noting that the market had started to recover and stability had started to return then inflation pressures and murmurings from the Bank of England on further rate rises “pricked the recovery balloon and inflated the market”.
Terrington said that management had given guidance that for full-year 2024 it expected to lend £1.3bn to £1.6bn mortgages.
“We expect therefore for the pipeline to grow as the year progresses. Also, it’s too early to be seen in any hard data, but we are certainly picking up signs of optimism from landlords.
“That is a product of them starting to see stability in the interest rate environment, our average mortgage loan is 5.2 per cent and I suspect if rates continue to soften, we could well see that going being below five per cent,” he noted.
Terrington said that between August and now, five-year swap rates were about one per cent lower, which he said gave a “sense of how high it was and how the market was spooked back then”.
“There’s been a real change and I think that’s feeding through to landlords,” he added.
Going into the new year he said that “stability” and “certainty” were key, and the “medicine appears to be working” in terms of base rate increases and inflation, with inflation expecting to fall below five per cent by year-end.
“I think we’re quietly optimistic without getting carried away, but like all businesses and all people we just need some certainty.”
Arrears not expected to rise significantly
On the arrears side, while arrears had increased year-on-year from 0.15 per cent to 0.34 per cent it “did not expect that to increase materially during the course of the year”.
“We have intimate knowledge of our customers, and most of those arrears relates to legacy portfolio loans originated before the financial crisis. Those customers are on variable rate products and they’ve seen 14 base rate rises.
“If you look at the rest of our business, the professional landlords post-financial crisis, arrears are down this year rather than up so it’s a very different profile position,” he explained.
Terrington said that arrears were still at “modest levels” and it was lower than the wider industry figure of 0.69 per cent cited by UK Finance.
Regarding customer behaviour when renewing, he noted that most were going for five-year fixed rates and those on interest-only were staying on such deals.
