Challenger bank Paragon sees slim profit as buy-to-let pipeline remains strong despite sector headwinds

 
Lucy White
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Paragon did say it expects the rental sector to stay strong (Source: Getty)

Challenger bank Paragon, which specialises in lending to landlords, has reported a slim rise in profits after a year in which it completed its operational restructuring.

The figures

Paragon's profits before tax increased by a small 1.1 per cent margin over its 2017 financial year, to £144.8m.

Total lending was boosted 28.8 per cent to reach almost £1.9bn, as buy-to-let completions rose 20.6 per cent to £1.4bn and commercial lending jumped by 66.8 per cent to £389m.

Retail deposits nearly doubled over the year to £3.6bn.

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Why it's interesting

Paragon has been pushing to continue its transition from a lender to a “diversified banking group”, but its core business remains its buy-to-let franchise.

It noted that there was “dampening demand in the sector” this year, due to a series of fiscal and regulatory changes aimed and landlords and lenders, but that its performance was strong against this backdrop.

Further regulatory changes, Paragon added, which require lenders to collect more information about the landlord's business, will lead to further disruption in the market which it could benefit from.

However, the challenger bank did expect strong levels of demand from tenants in the UK private rented sector “for the foreseeable future”.

Profits were hit slightly by an operational restructuring, but Paragon announced a £50m share buyback programme and shares were up 1.41 per cent in early trading.

Chief executive Nigel Terrington said that the bank has extremely strong capital ratios, and together with its strong outlook for the future this allowed it to increase its dividend more than expected to 15.7p per share.

Read more: Things have changed but we're doing well, says Paragon

What Paragon said

Chief executive Nigel Terrington told City A.M. that it is currently an "exciting" time to be a challenger bank in the UK. ''The range of opportunities are extensive and the scale of the growth that can be achieved is as good as I've seen it," he said.

Terrington added that he was encouraged by the government's apparent support for smaller UK housebuilders in yesterday's Budget, as the bank has a "fledgeling" housebuilding finance division.

Commenting on today's results, he said: "We have been in the middle of a transition to a multi-product banking group. This came together at the end of the year with the operational restructuring, and we should see the financial benefits in the two- to three-year-plus horizon."

Read more: The disastrous new tax on buy to let landlords is really a tax on tenants

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