UK lender says profits are intact

Rising borrowing costs is good for buy-to-let, says Paragon

UK buy-to-let mortgage lender Paragon Group said it had enough funding to see it through until next year in an effort to reassure panicked investors.

Shares in the Solihull-based lender rose close to 5% after it said that it had £1.8bn of agreed credit deals with banks to grow its business into 2008.

The comments come after Paragon lost a fifth of its value on Friday on fears over its future profitability.

The entire British banking sector has been upset by Northern Rock's woes.

Paragon Group is solely a mortgage lender with no deposit facilities, which means it is reliant on issuing debt supported by the interest income from its mortgages and credit deals with major investment banks for cash flow.

News that it will not be following Northern Rock to the Bank of England to prop up its business in the near term, sent the firm's shares cautiously higher to end the day at 297.5p, up 4.11%.

Tenant demand

It said trading for the financial year had been "strong" with lending volumes for the residential property investment market expected to be about 30% higher than the previous year.

The company points to recent figures from a number of industry groups, such as the Royal Institution of Chartered Surveyors and the Association of Residential Letting Agents, that show "the continuing resilience" of buy-to-let.

"Both organisations note that tenant demand has been boosted by higher borrowing costs and the growing uncertainty in financial markets," Paragon said.

The firm also pointed to consistent factors such as high levels of migration from the European Community.

But the company noted that the cost of borrowing against its mortgage business may rise going forward as a result of the continuing problems in the wholesale money markets.