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Paragon reports £80.8m profits with BTL conditions improving

The Paragon Group of Companies, Paragon Mortgages’ parent company, has reported a profit before tax of £80.8m for the year ended September 30 2011, up from £71.8m the previous year.

Underlying profit, before exceptional and fair value items, increased by 22.7 per cent to £81.1m for the year, up from £66.1m in 2010.

While new loans of £127.0m were advanced during the year with a further £5.8m of further advances made to existing borrowers.

A major area of strategic focus for the group has been the development of new sources of recurring income with the acquisition of loan portfolios through Idem Capital and the servicing of third party loan portfolios through Moorgate Loan Servicing.

During the financial year Idem invested a total of £22.7m in three consumer loan transactions and the transfer of the servicing of two of these portfolios to its systems has now been completed and is in progress with the other.

In addition, in October 2011 Idem Capital acquired a portfolio of unsecured loans from Royal Bank of Scotland for £43.2m, paid from the Group’s cash resources, bringing the total of portfolio investments since 2009 to £89.5m.

The group says its view remains that a number of loan portfolios owned by banks and other financial institutions will become available for sale as these institutions de-leverage and restructure their balance sheets and the group will continue to pursue opportunities in this area.

On November 10 2011 the Group completed a £163.8m securitisation of buy-to-let loans, through Paragon Mortgages (No. 16) PLC. This securitisation, the group’s first securitisation since 2007, released warehouse capacity to accommodate further lending growth.

The group says it plans to return to the securitisation markets regularly as business volumes increase and dependant on volume and market conditions, additional warehousing capacity may be sought in due course.

During the year the group had a charge for impairment provisions of £24.4m, 37.8 per cent lower than the charge of £39.2m for 2010, reflecting an improvement in arrears performance, while the percentage of loans three months or more in arrears stands at 0.63 per cent, including acquired loans and receivership cases.

John Heron, managing director of Paragon Mortgages, says: “The focus for the year was very much to re-establish our distribution capability and prove our business model. Our return to the buy-to-let market was well received and we have seen both strong credit performance across our buy-to-let loan portfolio and customer retention.

“We have successfully rebuilt our relationships with the major mortgage networks, directly authorised intermediaries and buy-to-let specialists and through them are delivering once again a wide range of buy-to-let solutions including products tailor-made for professional landlords with more complex requirements.”

He adds: “The buy-to-let market has returned to growth, with the Council of Mortgage Lenders revealing a 39 per cent increase in loans originated in Q3. Conditions in the market are improving and, with increasing tenant demand, it is important that landlords have the opportunity to increase their portfolios

“The market is not without its challenges though. It is most certainly in need of product innovation to increase competition, and is being put under strain by factors in other areas of the housing market. We are well placed to meet these challenges though, building on the foundations we have successfully laid over the last 12 months.”

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