Leading buy-to-let lender closing to new business

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by Gill Montia

The UK’s third-largest buy-to-let mortgage provider, Paragon, expects to be closed to new business by the end of next month.

The firm has announced that its main financing facility will stop advancing funds after February, leaving the company needing to raise £287 million to repay a debt that falls due at that point.

Paragon plans to raise the money through a discounted rights issue that will be underwritten by Swiss investment bank, UBS.

Like Northern Rock, Paragon relies on the wholesale money markets to finance its lending.

The company began to experienced problems raising funds in November of last year, when banks had become reluctant to lend to one another because of the turmoil in the money markets resulting from the US sub-prime mortgage crisis.

Paragon has already withdrawn some products from the market and cut back growth plans for 2008 but its chairman, Robert Dench, is hopeful that: “the rights issue will provide Paragon with a platform from which it can pursue further funding, so the company can return to writing significant volumes of profitable business when credit markets reopen”.

The lender’s difficulties have arisen at a time when there are already concerns that some property investors will be forced to sell because of rising mortgage costs and falling property values.