Paragon Mortgages returned to new lending last week for the first time since February 2008, claiming this proves other lenders can follow its lead.
The specialist lender has managed to secure £200m worth of credit in a revolving warehouse facility from Macquarie Bank, which can be refinanced in the public bond markets. It is a method of financing that Paragon has used to fund its mortgages since 1986.
Speaking to Money Marketing, director of mortgages John Heron says: “We are using a well established, sustainable funding structure that should send out the message to the mortgage market that if Paragon can do this, others can follow.”
John Charcol senior technical manager Ray Boulger says the move shows that Paragon is convinced it can operate successfully in the wholesale market.
He says: “I suspect that both Macquarie and Paragon are confident they are going to be able to do that because simply using up £200m and then retiring again would not make a lot of sense.
“I cannot believe they would have gone this far if they were not confident they could refinance it and there are some positive signs in the residential mortgage-backed securities market.”
Boulger believes this means the wholesale markets are re-emerging to the extent that new lenders could find it easier to enter the market in the coming months.
He says: “To get new lenders into the market, you either need to take deposits or get funding from the wholesale markets. So if the residential mortgage-backed securities market re-emerges, which it is slowly doing, then it is a clear sign that new lenders will find it a bit easier to come to the market. There is certainly a long way to go but there are some encouraging signs.”
Precise Mortgages managing director Alan Cleary expects the wholesale market to open up in time for the date of maturity on Paragon’s new lending and believes it is reasonable of Paragon to expect to launch a bond issue to refinance the credit facility.
He says: “Most products are three to five-year. If you take the view that over the medium term the market will normalise, then theirs is a good position to be in.
“The market is opening up, albeit very slowly. You would hope that in three to five years things will look better again, allowing them to refinance in the wholesale market.”
However, Buy To Let Funding Services principal Geoff Laird thinks the move should not be seen as a sign that the wholesale market is improving and says Paragon managed to secure funding because of its good reputation more than anything else.
He says: “Its track record of lending to the established professional investor rather than the get-rich-quick merchants has given additional comfort to this Australian bank.
“I see it as more to do with the strength of Paragon than an indication that mortgage-backed securitisation is going to get easier in the coming months.
“I would like to believe it would do – and it might then allow lenders like Capital Homeloans to come back in to the market – but I do not think that is the case.”