Paragon maintains pace as stamp duty changes slow mortgage lending
Paragon has weathered a shakeup in stamp duty as analysts hailed the FTSE 250 bank’s “excellent momentum” in the first nine months of the financial year.
The London-listed business recorded £1.1bn mortgage lending for the first three quarters, but estimated full-year volumes at the lower end of targets at £1.6bn.
The firm said subdued activity in the market reflected “the stamp duty disruption” after Chancellor Rachel Reeves reduced the threshold to £125,000 from £250,000 on residential property purchases and cut the first-time buyer threshold to £300,000 from £425,000 in a bid to boost Treasury revenues.
Paragon’s profit in the first half of the financial year surged 26.7 per cent as buyers rushed to beat the March 31 deadline for Reeves’ tax changes. Mortgage lending soared 25.1 per cent to £810m for the period.
Despite the slowing in mortgage lending, analysts remained bullish.
RBC analysts Benjamin Toms and Pablo de la Torre Cuevas said Paragon had the sixth most consistent earnings since 2000 out of 50 European banks.
“A linear regression analysis sub-dividing banks into low vs high earnings volatility suggests Paragon is undervalued,” they added.
The changes to mortgage targets come despite fresh figures from the Bank of England released on Tuesday revealed the housing market’s recovery was “well underway” after stamp duty changes.
Mortgage approvals also increased to around 64,200 from 61,300 previously in May. Remortgaging approvals also hit its highest level since October 2022.
Analysts back Paragon
The bank left all guidance besides mortgage lending unchanged, including up to £100m in share buybacks.
Analysts at Peel Hunt rated the stock a ‘Buy’ with a “strong balance sheet continuing to support attractive shareholder returns”.
Paragon’s net loan book was up 1.1 per cent during the third quarter to £16.2bn – a 4.8 per cent annual rise.
Paragon chief executive Nigel Terrington welcomed the changes to the minimum requirement for own funds and eligible liabilities (MREL) rules announced in the Chancellor’s Mansion House regulatory reforms package.
The low threshold of £15-25bn had served as a headache for mid-sized lenders with the likes of Paragon arguing it was a “significant barrier to growth and competition of mid-tier specialist banks”.
Terrington said: “We welcome the changes to the MREL regime which, along with a proposed broader set of reforms, support a more competitive and dynamic financial services sector.”