Paragon Group, the specialist lender, said profits had reached a record level this year as the growth of the buy-to-let market in the UK gathered pace.

The group said underlying pre-tax profits rose 18 per cent to £122m for the year ending September 30, up from £104m last year.

Profits were buoyed by the group widening its distribution of buy-to-let loans across its Paragon Mortgages and Mortgage Trust brands, which helped spur an 82.5 per cent increase in buy-to-let completions to £656.6m.

Nigel Terrington, chief executive, said there was “ongoing demand” for rented property and that Paragon was “in the thick of it”.

“There are more people renting than in the past,” he said. “This has also been compounded by the Mortgage Market Review coming in. The likely reduction of available finance to homeowners pushes up more rental demand.”

Savills, the estate agent, forecasts the UK private rental sector will grow to represent 24 per cent of total housing stock over the next five years, up from 18 per cent at present.

Idem Capital, the specialist debt purchasing division of Paragon, also contributed positively to profit growth, increasing its investments net of debt by 89.3 per cent to £175.7m.

Mr Terrington said large banks will increasingly offload their non-core divisions and that bid-offer spreads have narrowed on these assets because of a better funding environment, meaning non-core portfolios are now more likely to sell.

Paragon’s profits would have been higher had it not been for a £6.4m loss as a result of costs associated with establishing its new bank, which launched in February.

“But we’re not trying to challenge major UK banks; we’re a specialist lender,” said Mr Terrington. “We have no plans for branches or current accounts, as we focus on narrow areas where we think we can do things better than others.”

The bank offers a range of savings products and loans for consumers and small businesses and was initially injected with £12.7m of capital from Paragon Group.

Paragon bank started taking retail deposits in June and gathered £60.1m by the year-end.

The group said its capital position remained strong, with a core tier one ratio of 19.7 per cent and a leverage ratio of 8.3 per cent.

Paragon has also announced an initial £50m share buy-back programme to help improve shareholder returns, Mr Terrington said.

Dividend payments for the year will increase 25 per cent to a total of 9p as a result of the profit increase, the group added.

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