The Interview
A Paragon of virtue
The future of the buy-to-let market is looking bright, says Paragon group director of mortgages, John Heron. It’s important, it’s sustainable and helps provide an absolute fundamental staple of life: homes. He talks in depth to Sarah Davidson about the lender’s return to market
Paragon’s return to the buy-to-let mortgage market earlier this autumn after an absence of more than 30 months was hailed as a coup by everyone in the market. “The great beast is back,” one broker put it. Paragon’s decision to start originating
new loans to professional landlords has provided some extra competition for lenders and given brokers more product choice and diversity, all of which lends weight to why the market welcomed it back with open arms. But perhaps the single most important aspect of Paragon’s relaunch is where the money came from: the wholesale markets. “Paragon’s the first organisation that’s
been able to put together a sustainable source of funding since the crisis hit and that’s no mean feat,” says group director of mortgages, John Heron. In late September, Paragon’s
management team announced it had secured a £200 million revolving warehouse funding facility from Macquarie, the Australian bank. Compared to Paragon’s pre-credit crunch facility of £2.3 billion, it might sound like peanuts but it’s a serious achievement. Paragon is the first non-bank to secure a funding line of this sort since the wholesale money dam dried up in 2007. Sound far-flung from the day to day of
mortgage broking? It isn’t. When the chips are down, getting this type of funding back in the market is the single most important thing in the fight to get lenders lending again.
when it reaches the £200 million mark Heron is confident the market has turned a corner. “In the midst of the credit crisis
structured finance was getting a very bad press but in reality it takes a 25- year mortgage and matches it in a 25-year securitisation,” he explains. “If it’s structured properly, the margins for the funds and the loan are matched in the price of the funding and the term of the funding and it’s phenomenally safe. “Very slowly, we’ve seen confidence
returning to wholesale funding markets. There have been ongoing trades throughout the crisis of existing mortgage bonds. The more important question is about new issuance. “We wouldn’t have agreed the facility
with Macquarie unless we were very confident that the mortgages we complete into that warehouse can be funded through long-term matched finance mortgage securitisation in due course,” he says. “The reason we’re confident of that is
More reassuring still is the structure of
the deal. Its revolving nature means that when Paragon has leant £200 million, it will securitise the loans and then Macquarie will renew the warehouse and Paragon can start all over again. This set up will last for the next four years. While time still has to tell whether
Paragon can successfully persuade investors to buy its securitised assets
28 mortgAge introducer DECEMBER 2010
that we’ve maintained close relationships with the investor base throughout the period where markets have been tight or closed and we are happy that there is a good appetite for high quality buy-to-let mortgages.”
A PArAgon of vIrTue The investor confidence Heron is taking about is built around past experience of Paragon’s asset performance. “Paragon was the first organisation in
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