Paragon (PAG) is making use of a continued rise in the buy-to-let market to diversify its sources of funding and revenue, with its full-year results demonstrating progress on both counts. Underlying pre-tax profit was up a tenth at £135m, powered by an average buy-to-let loan book that grew by 7 per cent over the period. New business here doubled to £1.3bn, with the pipeline also strongly up. The improved credit environment was also a key factor: the loan impairment charge halved to £5.6m.
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.