Paragon Banking Group, one of the country’s largest specialist buy-to-let lenders, has reported a sharp slowdown in new mortgage advances as the lingering chill from chancellor Rachel Reeves’s November budget continues to weigh on landlord sentiment.
The Solihull-based FTSE 250 bank said new mortgage lending in the six months to 31 March slipped to £774 million, down 4.7 per cent from £810 million in the same period a year earlier. Paragon attributed the dip to a “smaller opening pipeline” of business, which it linked directly to the landlord “nervousness” that built up ahead of the long-trailed and repeatedly delayed Labour fiscal statement.
The lender now expects full-year mortgage lending to come in at the lower end of its previously guided range of £1.5 billion to £1.7 billion, a quietly significant downgrade for a bank whose loan book is dominated by professional portfolio landlords who have been steadily increasing their market share as amateur investors retreat.
Statutory profit before tax fell 5.1 per cent to £133.2 million, from £140.1 million the year before, while net interest margin (NIM), a closely watched gauge of profitability for any lender, narrowed to 3.08 per cent from 3.13 per cent.
Paragon warned that “further tightening” of NIM was likely in the second half of its financial year, although it now expects to end the year above its original guidance thanks to what it described as “careful focus on margin management both in our lending and deposit-taking activity”.
The group’s overall loan book nudged 2 per cent higher to £16.6 billion, but deposit balances fell 3.2 per cent to £15.3 billion. Provisions for possible loan losses jumped 40.5 per cent to £21.5 million, a figure the bank tied to legacy development finance lending that predates its current strategy by more than four years rather than to any deterioration in its core buy-to-let book.
Indeed, arrears across Paragon’s buy-to-let portfolio were lower than the comparable period last year, even as the US–Iran conflict rattled global markets and pushed swap rates – the wholesale market rates that underpin fixed-rate mortgage pricing, sharply higher in late spring. According to UK Finance data, buy-to-let arrears across the wider market have continued to ease since the 2023 peak, supported by improving interest cover ratios as rents rise and headline rates drift down.
Paragon said “credit performance across our loan books generally remained both strong and resilient” despite the rapidly shifting interest rate outlook.
In its report to investors, the group did not shy away from the political and geopolitical backdrop now bearing down on the buy-to-let market.
“The full impact of the policies introduced by the current UK government on entering office are only starting to be felt,” the bank said, “and any inflationary pressures arising from these, together with the geopolitical factors in play, add complexity to the Bank of England’s management of interest rates.”
It went on: “All these factors make the effect of future economic pressures on customers harder to evaluate, particularly as the starting position has higher inflation levels and interest rates than the UK has been used to.”
The combination of fresh tax changes for landlords, the looming Renters’ Rights Act, and a renewed bout of mortgage rate volatility driven by the Iran conflict has clearly given many landlords reason to pause rather than push the button on new acquisitions.
Despite the cautious tone, Paragon used the half-year results to extend its share buyback programme by a further £50 million, taking its total commitment for the year to £100 million. The bank has now returned around £1.2 billion to shareholders over the past decade through dividends and buybacks, a figure that compares favourably with most of its high-street peers.
Nigel Terrington, the chief executive, said Paragon was “committed to returning excess capital going forward”, adding: “Whilst we are mindful of the volatile external environment, our deep experience, strong capital ratios and ongoing technology improvements mean that we remain well placed to support our customers, deliver sustainable growth and capitalise on any opportunities that may arise.”
Investors were unmoved. Paragon shares, which have fallen 19 per cent over the past year as the policy backdrop for landlords has hardened, closed down 3p, or 0.4 per cent, at 734½p.
Analysts at Peel Hunt struck a more constructive note, arguing that the bank’s structural shift towards professional landlords, who hold larger, more diversified portfolios and tend to remortgage rather than sell – should continue to underpin returns.
“The company is able to commit capital flexibly to lend either in mortgages or in commercial lending according to business circumstances and opportunities, subject always to a strict view of returns available to its shareholders,” Peel Hunt said in a note to clients.
“Its lending in the core buy-to-let market remains supported by the ongoing shift in the market towards professional landlords, offering greater client longevity through higher retention, and continued levels of low-risk in lending terms.”
For property investors watching Paragon as a bellwether of the wider specialist buy-to-let market, the message from Solihull is finely balanced: the post-budget hangover is real, margins are being defended rather than expanded, but the structural shift towards bigger, more sophisticated landlords still leaves the most committed players firmly in the driving seat.
