Paragon Banking Group’s annual results showed that its commercial division saw a small decline in gross lending, falling from £1.24bn to £1.19bn, with growth across its development finance and motor businesses.
Overall, new advances for the year totalled £2.7bn, in line with the previous year’s performance.
Paragon’s net loan book grew by 4% to £3m, and its operating profit rose by 0.4% to £293.9m.
Nigel Terrington, CEO of Paragon Banking Group, said: “We enter the new financial year with good momentum. While the external environment remains uncertain, we see plenty of opportunity ahead in our chosen specialist markets.
“With a strong capital position, a modern digital platform and a clear strategy, Paragon is well-placed to continue building on this success, delivering sustainable growth and attractive returns for our shareholders.”
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BTL loan book rises
Its mortgage lending division, comprising BTL loans, saw its loan book increase 3.4% to £13.9bn, owing to “strong customer retention”.
Three-month arrears across the BTL book rose slightly from 0.51% to 0.52% from H1 to H2, and compared to last year, this was up from a rate of 0.38%. Paragon Banking Group said this was lower than the market average and the payment performance of borrowers remained “strong” despite economic pressures.
The average loan to value (LTV) was relatively unchanged at 63.2%, compared to 62.8% in 2024, which the group said represented “significant security” and rising house prices.
Its BTL pipeline “remained healthy”, the group said, closing the year at £820.9m, compared to £881.4m in 2024.
Paragon said its pipeline had been impacted by enhanced screening at the application stage, as part of its new mortgage lending system. This resulted in a lower pipeline but a higher conversion rate. It said when compared with the pipeline as of 31 March, after the platform was introduced, the year-end pipeline was 24% higher.
Contribution from Paragon’s mortgage division to the overall group rose by 2.5% to £264.2m in 2025.
Its net interest rose 1.9% year-on-year to £7m, with the 3.7% growth in average net loan balances offsetting its net margin, which fell by four basis points to 2.11%.
Louisa Sedgwick, managing director of mortgages at Paragon Bank, said: “This is a strong set of results in challenging market conditions, and we are pleased to have supported thousands of landlords to provide much-needed new homes in the private rented sector.”
She added: “The launch of our mortgages origination platform was a significant milestone in the financial year and broker feedback has been overwhelmingly positive. The new system has improved our agility to bring new products and processes to market more quickly, which you can see through initiatives such as our multi-property product and our streamlined process for landlords with 15 properties or fewer.
“It also enables us to work with a cleaner pipeline for two reasons. First, we make quicker decisions on applications and, second, we are moving cases through the pipeline more quickly.”
Development finance pipeline grows
Within its commercial division, the portfolio was 7.6% higher than the previous year at £2.5bn, and the development finance pipeline rose by 13% to £701m.
Paragon said its development finance business was impacted by economic uncertainty, such as labour costs and international trade. It also said the government’s initiatives to streamline the planning process were “yet to have a significant impact”.
The commercial division had a net interest margin of 5.86%, up from 5.7% previously, which generated an 8.6% rise in net interest to £135.5m.
Before impairment charges, its operating profit was £118.2m, 10.3% up on last year, which it attributed to its investment into its systems and improving its processes.
Impairment charges across its commercial division rose from £18.9m to £35.6m, with this concentrated across development finance. Aside from development finance, impairment charges increased from £1.1m to £1.4m, as Paragon said credit performance was “stable” across motor finance and SME lending.
Some 6.1% of accounts were credit impaired, up from 5.1% last year, and Paragon said a “substantial amount” of this was related to development finance projects where security cover could be high.
This resulted in the division reporting a 6.5% reduction in profit to £82.6m.
