Credit woes pinch mortgage lender's profits

Credit woes pinch mortgage lender's profits

Buy-to-let lender Paragon yesterday blamed the dire situation in the world's credit markets after admitting that its lending had fallen by half compared with last year.

The company, which is considered the biggest UK victim of the credit crunch after Northern Rock, said the lending squeeze would push profits down and force it to turn away many borrowers seeking to jump on the buy-to-let bandwagon.

An inability to raise funds on the international money markets prevented the lender from offering loans as it had in the past.

Analysts said the slump in Paragon's value since last year left it vulnerable to a takeover, though it would probably survive as an independent lender while potential buyers struggle to raise funds.

James Hutson, an analyst at broker Keefe, Bruyette & Woods, estimated Paragon's net asset value, based on the size of its existing loan book, at 250p a share. A £287m fund raising in February at a 90% discount saw its shares dive from more than 90p to nearer 60p a share.

Paragon lent half as much to new customers in the first six months of its financial year, to March 31, compared with a year ago. Nicholas Keen, the finance director, expects new lending to fall even further in the next six months.

"I think that will fall as we go forward. The markets are so volatile month to month it's quite hard to see what might be around the corner in six months' time," he said.

Paragon reports that exceptional costs.....continued below

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related to the emergency fund-raising in February would also drag down profits.

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