(Reuters) - Britain’s Paragon Banking Group (PARA.L) said its focus on professional landlords helped to drive a surge in its buy-to-let business even as tax and regulatory changes made the property market tougher for smaller investors.
Focused on mortgage and business finance, Paragon said 71 percent of applications in its core buy-to-let business were from professionals as of the end of September, rather than people renting out one or two properties.
Traditionally 90 percent of Britain’s buy-to-let market has been owned by amateur investors. However a string of tax and regulatory changes announced last year has made the sector less attractive to such “dinner party” landlords, allowing larger institutions to grab market share.
“These changes disrupted the level of market activity during the year, dampening demand in the sector at an aggregate level. Against this backdrop the group’s performance has been strong,” Paragon said.
Overall lending in the wider buy-to-let market has reduced from about 40 billion pounds ($53.2 billion) to about 35 billion pounds this year, CEO Nigel Terrington told Reuters.
“While the wider market is weaker, our market share is stronger... in the areas that produce the better customers, who are able to deliver enhanced margins and stronger relationships,” Terrington said.
Founded in 1985 and based in Solihull in central England, Paragon has a 5 percent share of Britain’s buy-to-let market.
Buy-to-let investors buy residential property, typically with a mortgage, with the aim of renting it out. House prices have been outpacing a rise in wages for Britons, leading people to rent more, making buy-to-let an attractive investment.
Paragon’s pipeline of buy-to-let loans in process at the end of September was 604.2 million pounds ($804 million), 88.2 percent higher than a year earlier and completions rose 20.6 percent to 1.39 billion pounds.
The buy-to-let market is facing stricter regulations and the most recent regulatory changes require lenders to collect and analyse more information about a landlord’s property portfolio.
“Notably, Paragon flags that it sees the professionalisation of the BTL market as conducive to market share build – a point that OneSavings (OSBO.L) has been making strongly too,” Goodbody analyst John Cronin, said.
Shares in Paragon were up 2.1 percent at 470.7 pence at 1020 GMT on the London Stock Exchange, outperforming Europe’s banking sector .SX7P.
Paragon reported a slim 1.1 percent rise in pretax profit rose to 144.8 million pounds for the year ended Sept. 30. Profit was impacted by costs related to a Tier-II capital bond and its reorganisation.
Reporting by Noor Zainab Hussain in Bengaluru; Editing by Saumyadeb Chakrabarty and Keith Weir