Paragon forced to limit new business

Paragon, the buy-to-let mortgage provider, has announced that it will need to place restrictions on new lending business from the end of February.

While Paragon seeks to reassure existing customers that it will continue to service their interests, the company expects to be far more restrictive on lending for new customers. Paragon chairman, Robert Dench, has stated that this situation will need to remain until the credit markets reopen.

The company is already turning to its shareholders to bolster-up its balance sheet and has plans to raise £287 million through a discounted rights issue that will be underwritten by Swiss investment bank UBS.

The proceeds will be used to repay a £280 million loan that falls due on 27th February.

Paragon is the UK’s third-largest buy-to-let lender and like Northern Rock, relies on the wholesale money markets to finance its lending.

The company first experienced problems raising funds in November of last year, when the impact of the US sub-prime mortgage crisis left many banks reluctant to lend to one another.

At this point Paragon withdrew some of its products from the market.

Robert Dench, the company’s chairman is hopeful that: “the rights issue will provide Paragon with a platform from which it can pursue further funding, so the company can return to writing significant volumes of profitable business when credit markets reopen”.

Paragon’s difficulties have arisen at a time when there are already concerns that a large number of buy-to-let investors will reduce the size of their portfolios because of rising mortgage costs and falling property values.

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