Generation rent suits Paragon

Net interest margins were up 5 basis points to 2.04 per cent, as the lower-margin business written before the financial crisis is replaced by the higher-margin business written since. But this newer business comes with a higher turnover: annualised redemption rates increased from 4.1 per cent to 5.8 per cent. An increasing amount of buy-to-let loans were issued by its 18-month-old banking operation, which is also growing its motor finance book. What's more, the acquisition of Five Arrows has added asset finance to the mix: both of these are areas of growth, but also growing competition, for alternative lenders.

The funding shift is not before time. Paragon's traditional funding method - securitising its mortgages and selling them to investors - has become more expensive as the UK government offloads its bailed-out mortgage books onto the market. This oversupply means that Paragon has had to pay an increasingly high margin to investors. The £709m in deposits raised by the banking operation (£60m in 2014) will reduce its reliance on the securitisation markets, while a third retail bond issued during the period raised £113m.

Idem Capital, the group's debt management business, increased its underlying profit by 2.5 per cent to £49m, as a strong market saw banks and other financial institutions continuing to offload paying and non-paying loans. Analysts at Peel Hunt expected to increase forecasts for the 2016 financial year by 7 per cent to give adjusted pre-tax profit of £161m and EPS of 42p. That compares with £135m and 35.5p in the reported period.