LONDON (Reuters) - Mortgage provider Paragon will resume lending to buy-to-let landlords after securing fresh funds, and said many people were opting to rent rather than risk buying property in an uncertain market.
“Demand for rental property has never been as strong,” Paragon Chief Executive Nigel Terrington told Reuters.
“A lot of first time buyers can’t get mortgages or don’t want to take on a mortgage,” he added, saying that demand to rent out property was being driven from the likes of students and immigrants arriving to work.
The buy-to-let sector was emblematic of a housing boom that saw property prices triple in over a decade. The sector slumped during the credit crisis but has since shown signs of a recovery.
Paragon, which specialised in lending to professional landlords before higher funding costs forced it to close its doors in early 2008, said it would resume offering buy-to-let mortgages after obtaining a 200 million pounds senior secured loan facility.
The facility, to be rated by Fitch Ratings and provided by Macquarie Bank, will be available for a four-year term to Paragon Fourth Funding Limited, and interest will be charged on the amount drawn at one month LIBOR plus 2.875 percent.
Earlier this month, the British Bankers Association (BBA) said the number of loans approved for buying houses in the UK fell in August to its lowest since the housing market trough in 2009.
However, Paragon CEO Terrington said the buy-to-let market was proving to be “countercyclical,” since a reluctance to take up mortgages and buy property was driving people to rent homes.
Paragon said its new revolving facility provided the basis for the origination of new buy-to-let loans and a return to balance sheet growth.
It added that during the eleven months of its financial year to end-August 2010, 231.1 million pounds of its buy-to-let loan book had been redeemed.
Paragon also said that trading had been strong over the eleven months with arrears continuing to fall. The company now sees operating profit for the year to end-September 2010 above the current market consensus forecast of 58.2 million pounds.
Paragon shares initially rose as much as 11.5 percent to an intraday high of 182.70 pence, before paring those gains to trade up 5.6 percent at 172.5 pence by 9:31 a.m. British time. At that price, Paragon has a market capitalisation of around 514 million pounds.
Terrington also said Paragon was hoping to issue mortgage backed securities in 2011, to strengthen its finances.
The mortgage-backed securities sector has shown signs of life in recent months.
Last year, Lloyds sold a 4 billion pounds mortgage-backed bond and earlier this month Royal Bank of Scotland announced that it was planning to sell 4.7 billion pounds worth of mortgage-backed securities.
Editing by Paul Hoskins, Mike Nesbit