Paragon Group cuts its defaulting loans by 40% as arrears improve

JOHN HERON: LACK OF FUNDS IN THE SECTOR
JOHN HERON: LACK OF FUNDS IN THE SECTOR

Paragon Group has cut the amount it sets aside for defaulting loans by more than 40% as it sees improving arrears rates.

In its results for the year ending September 30 2010, Paragon Group – parent of Paragon Mortgages – last week revealed it has reduced its charge for impairment provisions to £39.2m, which is 40.5% lower than the charge of £65.9m for 2009.

The group also reported pre-tax profits of £71.8m for the year – 32% up on last year’s £54.3m profit.

The three-month-plus buy-to-let arrears for Paragon Mortgages are currently 0.83%, compared with the market average of 2.45%.

It says low interest rates have increased customer affordability, reducing the incidence of new arrears and assisting the correction of past arrears.

But the percentage of accounts with arrears of two months and over on the secured loan book has increased from 7.94% to 9.36% as at September 30 2010, but this is still lower than the industry average of 24.4%.

Paragon Mortgages re-turned to new lending in September with a revolving £200m warehouse facility from Macquarie Bank.

John Heron, managing director of Paragon Mort-gages, says the company has been encouraged by the initial phase of its return to new lending and has had a great response from landlord investors and mortgage brokers.

He says: “This underlines the strength of Paragon’s reputation in the buy-to-let market and also the shortage of funding in the sector, particularly for landlords with complex needs.”

Capital Economics predicted last week that by 2015, 17% of house-holds will live in private rented accommodation, up from 14% at present.

Ed Stansfield, chief property economist at Capital Eco-nomics, attributes this to rising student numbers and immigration, and an increase in those people priced out of owner-occupation market by the house-price boom and squeeze in credit conditions.

But the Citizens Advice Bureaux says in Q2 2010 it dealt with 7,020 enquiries from people who are in rent arrears, which is 19% more enquiries compared with the same time last year.