PARAGON, the specialist mortgage and credit lender, yesterday said it was prospering from lower interest rates, improved consumer confidence and a boom in demand for "buy-to-let" mortgages.
Paragon is the market leader in buy-to-let loans. Its mortgage book, totalling pounds 500m, should grow to more than pounds 1bn within two years. Yesterday, it posted a 32 per cent jump in first-half profits to pounds 14.7m. Customers buying homes to let out borrowed pounds 121.9m during the half year to 31 March, compared to pounds 83m for the same six months last year.
The results underline Paragon's recovery from its previous incarnation as National Home Loans (NHL). Like Mortgage Express and The Mortgage Corporation, NHL wrote huge volumes of business during the late 1980s' housing boom. In 1992, falling house prices and bad debts led to a giant loss of pounds 156m, and National Home Loans closed to business for three years to sort out its arrears.
But in 1995 the renamed group began to recover. It diversified into car finance and specialist lending. Last year it acquired Universal Credit to offer consumer loans.
Paragon's strategy of funding mortgages from the money markets gives it competitive strength in the high street. Its rivals fund loans from deposits and face stiff competition on deposit rates from new savings banks such as Egg. Their scope for cutting mortgage rates is limited by the expense of raising funds on the retail market. Paragon, on the other hand, can undercut the centralised lenders and lift its share of the market.
The market has not yet woken up to the scale of Paragon's advantage although the shares added 5.5p to 227p yesterday. On a forecast of 19.3p in full- year earnings per share, its prospective multiple of 12 is too low compared to 16 at the mortgage banks, or 20-plus at rival credit companies. That discount, combined with talk of a fresh housing boom, makes the shares a buy.