The mortgage provider at the heart of the buy-to-let boom has resumed lending for the first time in two years after securing a £200m loan that will allow it to take advantage of rising rents.
Paragon was the third largest buy-to-let lender in Britain, issuing one in 10 of all landlord mortgages, until the credit crunch forced it to freeze lending nearly three years ago.
The shares tumbled from a peak of more than £10 to less than 60p, and in January 2008 the company launched a heavily discounted rights issue.
Paragon began lending again on Tuesday after securing a £200m revolving credit facility. It is poised to refinance the mortgages through a £250m-£300m securitisation, most likely in the first half of next year.
Nigel Terrington, chief executive, said he had been encouraged by Royal Bank of Scotland’s recent £4bn securitisation and by attempts by Investec to securitise a “non-standard” loan portfolio, including some subprime assets.
“What we’re looking at is something modest in size and although it’s non-standard, we’re a cautious organisation,” said Mr Terrington. “We’ve been talking to bond investors for months now and the demand is definitely there.”
The portfolio will have a maximum loan-to-value ratio of 75 per cent.
The UK buy-to-let market, which peaked at £40bn a year in 2007, is now worth barely a quarter of that. But Paragon is aiming to get back to its historic market share of about 10 per cent, which would mean it writing about £1bn of new mortgages a year.
The market is dominated by Lloyds and Nationwide, which between them account for an estimated three-quarters of new buy-to-let mortgages.
The move could signal a revival of the buy-to-let market. Rents have been rising as first-time buyers struggle with tighter mortgage conditions requiring a large deposit. A drop in the number of new homes being built has also raised demand for rental properties.
Shares in Paragon rose 6.6p to close at 169.9p.