Chief executive Nigel Terrington said rental demand was at its “strongest level for 20 years” driven by mainstream lenders limiting mortgages for first-time buyers, an increase in student numbers and “strong immigration”.
He stressed the company was only interested in lending to lower-risk, professional landlords. “We are lending to people who are in it for the long term, 20 years or more,” said Terrington. “These are landlords who have been engaged in the markets for many, many years, and will be engaged for many, many years to come.”
Terrington said that alongside raised demand has come a strong improvement in funding markets and demand for low-risk mortgage-backed securities. As a result, Paragon will be able to package up its loans to sell as bonds to institutional investors such as Legal & General, M&G and BlackRock.
Paragon said three-monthly arrears had fallen from 0.97 per cent to 0.86 per cent. As a result, year-end profits will be at the top end of City forecasts, around £65million. Its shares rose 5¾p to 169p. The new lending will be funded by a £200million rolling overdraft facility with Australian group Macquarie Bank.
It will be paid off as Paragon sells bonds and then used to fund further lending. Terrington is targeting £400million to £500million a year in new mortgages.
Mortgage-backed securities based on high risk US sub-prime lending were one of the reasons behind the credit crunch.