Paragon’s profits drop but remains confident

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by Lin Freestone

Buy-to-let lender Paragon has recorded a sharp fall in profits for the first half of the year, but expects a return to market stability in due course.

For the six months to the end of March 2008, pre-tax profits fell by 39% to £26.4m. However, this figure includes the costs of a £287m rights issue needed to raise funds. The credit performance remains in line with Paragon’s expectations.

The firm’s lending levels were cut by more than 50% to £987.6m as a result of the crunch in debt markets during the year. The loan books will continue to be carefully managed.

Paragon expects tenant demand will continue to increase as uncertainty about the housing market and the economy generally augments the broader social and demographic factors which have been behind the increase in rental demand over the longer term.

The firm considers that professional landlords will increasingly look to pick up bargains to take advantage of weaker house prices and higher rents.

Paragon has come through a turbulent year, riding the storm that hit lenders relying on crisis-hit money markets. Bad debt charges as a percentage of customers remained at 0.3%, the same level as last year.

Paragon remains confident in the enduring strength of its franchise and maintained that long-term prospects for the private retail sector are healthy.