Richard Rowntree takes helm as Paragon MD
Rowntree (pictured) joins from the Bank of Ireland, where he was managing director of UK Mortgages, and will oversee Paragon’s lending activities across buy-to-let, second charge and residential mortgages.
Heron announced his retirement after 34 years with Paragon last May, with Rowntree named as his successor in September.
Rowntree has also held senior roles at Santander, Lloyds TSB, Halifax, the Williams & Glyn division of RBS, and was the chairman of UK Finance’s mortgage product board in 2019.
He said he plans to further develop Paragon’s focus on portfolio landlords as the lender expected demand for private rented property to grow following 2019, where the segment accounted for 89 per cent of its new lending.
Rowntree said: “Paragon has carved out an exceptional reputation in the buy to let market over the past 25 years under John’s guidance and I am excited to be able to take that forward.
“Buy to let is increasingly becoming the domain of the portfolio landlord and, with our experience of working with these customers, we are perfectly placed to meet their needs.
“Portfolio landlords have the greater propensity to purchase and it is this group that will increasingly add to the supply of decent homes in the private rental sector.”
Paragon BTL lending stable as profits and margin up
Buy-to-let lending overall was stable year-on-year at £1.48bn compared to £1.5bn in 2018, with a 17 per cent increase in the pipeline of business in progress at year end to £912m.
For its full-year results to 30 September 2019, the lender saw specialist landlord business account for 89 per cent of its buy-to-let mortgage completions, up from 79 per cent in 2018.
Paragon said it saw lower levels of buy-to-let redemption activity in the period at 8.6 per cent, down from 10.3 per cent in 2018. It said this was led by customer retention and “the extension of product maturity profiles”.
Specialist business also increased from 88 per cent to 91 per cent of the lender’s £912m buy-to-let pipeline.
Overall, Paragon’s underlying profit before tax saw a five per cent uptick from £157m to £164m.
Notably, Paragon also saw its net interest margin increase to 2.29 per cent, from 2.21 per cent.
This is while margins at mainstream residential lenders are coming under increasing pressure and growing tighter.
John Heron (pictured), managing director of mortgages at Paragon, said: “Following tax and regulatory changes, professional landlords increasingly comprise the core investors in the UK’s private rented sector.
“We continue to support them and our intermediaries with enhanced service and tailored products specially designed to meet their needs.”
Broker confidence drops to lowest level since start of 2017 ‒ Paragon
That’s according to the latest Financial Adviser Confidence Tracking (FACT) index from Paragon, which quizzes brokers on various elements about the market each quarter and calculates an overall confidence score.
For this quarter it was calculated as 97.8, down 11.2 from six months ago, and the lowest score seen since the first quarter of 2017.
The study noted a rise in the popularity of two-year fixed rates, with 39 per cent of business placed by brokers in the third quarter of the year on two-year terms.
This is up from the 37 per cent registered in the second quarter.
While five-year fixes remain the dominant product type, the proportion of borrowers going for these longer fixed terms has dropped from 51 per cent to 46 per cent.
John Heron, director of mortgages at Paragon, noted that five-year deals started to overtake two-year fixes at the end of 2017, and the combination of historic low rates, additional tax for owning second homes and political uncertainty have helped boost their popularity.
He continued: “As the UK heads into a general election, it’s interesting to see an increase in the proportion of homeowners looking for shorter to mid-term products as a way to retain stability but allow themselves the opportunity to reassess in two-years’ time, when the Brexit situation and its impact on the economy and the housing market is clearer.”
Quizzed on their expectations for how their own business will perform in the future, the index found a fall in confidence among intermediaries. Brokers said they expect to do around 1.7 per cent more business in the coming quarter, down from two per cent last time around.
However, the prospects for buy-to-let appear to be on the rise, with brokers suggesting a one per cent increase in business with landlords in the next 12 months, the highest figure recorded since the third quarter of last year.
Landlords pulling back as only three UK regions see portfolio growth
According to the latest quarterly research from BVA BDRC, only landlords in the East of England, Yorkshire and Humber, and London added properties.
In all other areas, sellers either outweighed or were equal to buyers.
Landlords renting properties to tenants in the East Midlands were the most optimistic about the future prospects for their business, the research found.
Half of landlords in the East Midlands said they felt good or very good about their expectations for rental yields over the next three months. Meanwhile one in three reported being optimistic they would achieve capital gains.
Landlords pulling back
Landlords in Wales, however, were less positive. Fewer than one in three felt good about the outlook for rental yields and less than one in seven saw the potential for capital gains.
In the North East, landlords were least likely to rate the outlook for capital gains positively.
Landlords in the East Midlands, together with those in Yorkshire and Humber, also achieved the highest reported rental yield at 6.1 per cent, compared with an average for landlords operating across all regions of 5.6 per cent.
John Heron, managing director of mortgages at Paragon, said: “Despite the positive picture in some regions, it’s clear landlords are feeling bruised.
“All the available data shows that tax changes have driven landlords to pull back from the market and encouraged a sharper focus on yields. This has reduced the stock available to rent and we are now seeing inflationary pressures building in many regions.
“The upshot is that tenants are having a harder time finding a good quality home in the sector and having to pay more for it.”
Rising number of landlords point to ‘booming’ tenant demand ‒ Paragon
The proportion of landlords to hold that view was the largest in almost a year and had grown in consecutive quarters for the first time since Q2 2017.
However, the amount of landlords reporting that tenant demand was stable, growing or booming had dropped to 81 per cent, down from 86 per cent in the last quarter.
The report noted that portfolio sizes are on the rise. The average landlord had 13.2 properties in their portfolio, up slightly from the 13.1 in the last quarter. This is the third straight quarter in which the average has risen.
Despite this, the report suggests there is caution among landlords over expanding further, with respondents expecting to have an average of 12.8 properties in a year’s time.
This conservative approach is coming through on financing too, with average portfolio gearing having fallen from above 40 per cent five years ago to just 33 per cent today.
Overall landlord optimism has dropped still further from the 13 per cent recorded last time around to just 11 per cent.
John Heron (pictured), director of mortgages at Paragon, said that a clear picture was emerging of the impact of various government and regulatory “interventions” were having on the private rented sector.
He continued: “Landlords have been buying fewer properties and selling more at a time when there has been a resurgence in tenant demand. The Royal Institution of Chartered Surveyors reported a similar trend in its August survey. It’s widely anticipated that this will lead to reduced choice and higher rents for tenants. This is probably not the outcome that policy makers were looking for.”
Richard Rowntree to succeed John Heron at Paragon
The appointment is subject to regulatory approval. Rowntree (pictured) is currently managing director of UK mortgages at Bank of Ireland.
He will succeed John Heron, who is retiring early next year.
Rowntree has previously held roles at the likes of Santander, Lloyds and Halifax. He is currently chairman of UK Finance’s mortgage product board.
Heron said that the lender had seen a number of “exceptional candidates” in its search for a new head for its mortgage business.
He said: “I am delighted that Richard is joining Paragon; he has a great track record with experience at a senior level across a number of mortgage segments and is well known for his excellent work at UK Finance. Importantly, Richard’s values are very closely aligned with Paragon’s and he is well equipped to take the business forward.”
Paragon increases procuration fees in product revamp
The move comes alongside a revamp for its switch and further advance product range for both portfolio and non-portfolio landlords.
For portfolio landlords looking to finance single self-contained units, the new range includes a two-year fixed rate at 3.55 per cent with a 0.5 per cent fee, as well as a five-year fix at 3.8 per cent with no fee.
Both deals are available at 75 per cent LTV.
For multi-unit blocks and houses in multiple occupation (HMO), at 75 per cent LTV there is now a two-year fix at 3.65 per cent with a 0.5 per cent fee, and a five-year fee-free fixed rate at 3.9 per cent.
For non-portfolios, the switch range now includes two- and five-year fixed rates starting from 2.85 per cent on loans of up to 75 per cent with a one per cent product fee, and at 3.5 per cent on loans of up to 80 per cent with no product fee.
While proc fees have been increased on the switch range, they are unchanged at 0.5 per cent on further advance deals.
John Heron (pictured), managing director ‒ mortgages at Paragon, said the “significant” refresh of its product line was designed to offer landlords greater choice and flexibility.
He continued: “We also understand the valuable contribution our intermediary partners make in ensuring the right products are delivered to the right customers. Where a broker recommends a Paragon switch product and is proactively engaged in the process, we believe that it is appropriate that the intermediary is rewarded, which is why we’ve increased proc fees to 0.30 per cent.”
Paragon’s John Heron confirms plans to retire in 2020
Heron is widely recognised to be one of the architects of the modern buy-to-let market and his lobbying efforts on behalf of the industry were often under the radar.
Friend and CEO at Keystone Property Finance, David Whittaker said: “John has always worked with dignity and kindness and his huge achievements are not always fully recognised by the industry. His knowledge and impact will resonate far beyond his achievements at Paragon and I’m sure Nigel Terrington will find him extremely hard to replace.”
A search for Heron’s successor at Paragon has already begun.
The Paragon model is often viewed as the pre-eminent model of buy-to-let business lending as it weathered the credit crunch when many other lenders retrenched or closed as the crisis took hold.
In H1 results, Paragon reported a 16% rise in mortgage lending driven mainly by new buy-to-let business to £834m.
The lender reported the percentage of complex buy-to-let completions rising from 72% to 88% of first half lending and Paragon’s mortgage loan book rose by seven per cent to £10.8bn.
Paragon managing director John Heron said: “The timing seems appropriate for me. The business is in very good shape and we’re in a very strong position in our chosen segment of the market of portfolio landlords with a strong proposition, great management and an extremely stable business. My colleagues at Paragon have also been an outstanding group of professionals at the top of their game and a nice bunch of people.
“It’s always been busy and I expect it to be so until the day I step down,” added Heron.
Paragon reports H1 mortgage lending up 16% to £834m
Of the total, buy-to-let business dominated new mortgage lending at £788m, and the percentage of complex buy-to-let completions – comprising customers operating through corporate structures or running large portfolios – jumped from 72% to 88% of first half lending.
Underlying profits in the mortgage segment grew by 17% to £85m and the net interest margin – which measures the difference between Paragon’s funding costs and what it earns from lending – improved from 1.55% in the first half last year to 1.69%.
By the end of the period, Paragon’s mortgage loan book had increased by seven per cent to £10.8bn.
Alongside mortgage lending, Paragon delivered an 89% year-on-year increase in its commercial lending portfolio to £1.3bn. It said this ‘demonstrated good progress in its strategic transformation to a more broadly-based banking group focussed on supporting British SMEs and consumers in specialist lending markets.’
The increase in lending was funded principally through an increase in the group’s savings deposits which grew 37% to £5.9bn.
John Heron, managing director of mortgages at Paragon (pictured) said: “Complexity around the private rented sector resulting from fiscal changes and increased regulation has resulted in a shift in balance with professional landlords providing a greater proportion of the supply of rented homes.
“Paragon’s experience of lending in this segment over the last 20 years has helped to consolidate a leading market position and grow market share where others have seen their positions eroded.
“Private landlords are vital to the UK’s housing provision and we continue to develop our product and service capability to support them in developing their business.”
Paragon lends to private individuals and limited companies and offers financing for single, self-contained properties, as well as houses in multiple occupation (HMOs) and multi-unit blocks.
The lender can accommodate higher aggregate lending limits and more complex letting arrangements including local authority leases and corporate leases along with standard Assured Shorthold Tenancy agreements.
Paragon launches short-term funding for landlords
The short-term finance products are designed to help landlords planning to purchase and improve property, as well as those looking to upgrade already-owned property to achieve a better yield.
The range includes three different options to cover standard, light and heavy refurbishment projects. It also extends to projects involving a change of use for Houses in Multiple Occupation (HMOs) and multi-unit conversions.
All options offer loan amounts of up to £1m, with maximum loan to value (LTV) ratios ranging from 65 per cent to 75 per cent and terms from one month to 12 months depending on the option selected. Loans are interest-only and come with a choice of either monthly payments or rolled up interest.
Depending on LTV, terms include monthly interest rates ranging from 0.55 per cent to 0.75 per cent per month for landlords undertaking light refurbishment, with an application fee of £150 and a product fee of 1.75 per cent.
The lender said the loans were suitable for landlords considering simple improvements, those undertaking refitting and modernisation work and those carrying out alterations that needed planning permission, permitted development rights or building regulations.
Landlords applying for standard and light finance with a maximum term of six months can also opt for a simultaneous short-term finance and buy-to-let mortgage application on the same property.
These applications will be assigned the same underwriter to improve continuity and customers will benefit from reduced mortgage application fees.
John Heron, director of mortgages at Paragon (pictured), said that short term finance is an important part of the funding mix especially for professional landlords looking to grow or reconfigure their property portfolio.
“As landlord tax changes begin to bite, property refurbishments can offer an attractive route to boost capital value and improve yield.”