Paragon posts 23 per cent jump in mortgage lending to £3.21bn for FY22

Mortgage advances rose by 17.2 per cent to £1.91bn while commercial lending grew 34.3 per cent to £1.3bn.  

Specialist buy-to-let lending, provided to landlords with four properties or more as well as complex cases, made up 98 per cent of new originations. 

Arrears on its buy-to-let portfolio fell from 0.21 per cent to 0.15 per cent, while the average loan to value (LTV) ratio was 57.9 per cent, down from 61.2 per cent. 

The group said its development finance business “performed strongly” with new lending increasing to £632.2m, representing a 23.9 per cent annual rise. Paragon said although the volume of projects funded rose, some developers faced supply chain issues which threatened some developments. 

Towards the end of the year, the number of enquiries fell as developers reacted to economic uncertainty. Paragon said this led to undrawn amounts on live facilities sitting at £556m by the end of its financial year, 11.1 per cent higher than a year ago. 

Within its green mortgage offering which launched this year, £64.5m in new lending facilities had been completed and drawings reached £11.9m. Paragon said it expected this to be an area of focus going forward as developers consider this into project planning. 

Paragon: ‘A strong platform for growth’

Its new buy-to-let business pipeline, comprised of loans going through the underwriting process, stood at £1.26bn. This was a 24.6 per cent rise on the prior year and a record for the business. Paragon said this gave the group a “strong platform for growth” next year. 

Richard Rowntree, managing director of mortgages at Paragon Bank, said: “This was a strong performance from the mortgage division, reflecting our specialist approach and focus on professional landlords. The UK is experiencing unprecedented levels of tenant demand and our landlord customers are providing much-needed new homes to the private rented sector.  

“I was particularly pleased to see strong growth in lending against properties with an EPC rating of between A-C; it’s important that the UK housing stock is upgraded as the UK transitions towards net zero by 2050.” 

Rise in profit 

Its pre-tax profit also rose by 95 per cent to £417.9m, which it owed to non-cash accounting fair value gains which are expected to reverse over time but protect the group’s pipeline margins. 

Fair value relates to the value of an asset or liability and this can be affected by changes in the economic environment. 

The group said the majority of its pipeline was on a fixed rate, but its policy of pipeline hedging meant loans could be completed in a rising rate environment without affecting its margins. 

Shift to retail funding 

Paragon Banking Group has moved towards a retail funded structure and during the year, deposits exceeded £10bn for the first time. This reached £10.7bn, which was up on £9.3bn last year which the group said provided a “reliable, scalable and cost-effective source of funding”. 

Paragon said it benefitted from this shift in funding and attributed it to the performance of its net interest margin. 

The group’s net interest margin rose by 30 basis points to 2.69 per cent and its net interest income came to £371.2m, up from £310.5m. 

The group also completed £64.2m of its £75m share buyback programme. It announced a share buyback of £50m for 2023. 

Paragon said its funding structure enabled it to react quickly to a changing environment and help customers with rising costs. 

Paragon said: “We enter 2023 with strong margins, high quality loan books, robust pipelines, strong capital, cautious provisioning and well-developed franchises in each of our operating divisions.” 

Paragon: ‘Outstanding financial and operational performance’

Nigel Terrington, chief executive of Paragon, said: “These results reflect an outstanding financial and operational performance, delivering good growth, enhanced margins and improved cost efficiency, all combining to deliver strong returns to shareholders.  

“Our cautious risk appetite, high quality loan book and extensive through-the-cycle experience ensure we are well positioned as we head into 2023 and are fully prepared to support our customers’ needs.”