The Interview
activity from smaller specialist players and regional building societies around the edges. Principailty, Manchester, Norwich &
Peterborough and Kent Reliance have been active from the mutual side of the fence. And in the last seven months both Aldermore Mortgages and Precise Mortgages have launched specialist offerings in the buy-to-let market. “I think buy-to-let has clearly proven
itself attractive to lenders because it’s proven itself through the credit cycle,” says Heron. “It’s very clearly a high credit quality product but because it’s fundamentally commercial it’s also a higher margin product.” So where does Paragon fit into the
picture? “Paragon is a huge fan of the
private rented sector. That market is overwhelmingly supplied by private individuals and that within that, the professional landlord is the most important component,” he says. “Some 73% of property in the private rented sector is owned by just 11% of the landlords.” It’s the professionals that Paragon has
traditionally lent to and Heron seems adamant that’s where the lender’s home ground remains. “The larger scale landlord is crucial
to the supply of property to this sector. Paragon has for many years focused its attention on making sure we have products and services in place that recognise the needs of professional landlords - without cutting us out of the smaller investor market,” he adds.
rebAlAncIng The equATIon “Without doubt there is currently more demand from landlords for buy-to-let mortgage finance than is currently being met,” says Heron. “An extreme market in buy-to-let in
2007 delivered £44 billion. A depressed market is delivering £8.5 billion – what should a normal market look like to sustain private rented sector demand?” he questions. “A recent report from Datamonitor
concluded that it should be around £25 billion by 2014. It’s very difficult to be precise about these things but it’s our view that a sustainable buy-to-let market
of around £20 to £25 billion would be reasonable and would be essentially a purchase market rather than a refinance market,” Heron adds. But knowing where the market needs
to be and identifying the trajectory to get there are two different things. “What you need to get there is a
continuing improvement in product and lender available to landlords,” says Heron. “Landlords need choices, it’s that simple.” Essentially it’s down to competition
then, but while that is improving we’re still some way off being able to call this a competitive market. “I think particularly professional landlords
will respond to demand by investing in property,” says Heron. “The missing piece of that jigsaw over the past few years has been buy-to-let finance. Paragon’s return to the market has hopefully been good news for them.” Heron is keen to couch this tentative
optimism within the current market. There has been much debate about whether the armchair investors in buy-to-let in the heady days of the mortgage market who lost big bucks through making poor choices should be cause to regulate the buy-to-let market. “My own position is that regulation as
operated by the FSA makes absolute sense where it’s designed to protect consumers,” says Heron. “However, buy-to-let landlords are not consumers. It is very obviously a commercial transaction. Even where a new landlord buys their first property with or without a mortgage they are engaging in a commercial activity. “They are buying that property with the
intention of running it to make a profit from the rental income and ultimately, in many years time, to benefit from the sale of the property. That makes it fundamentally different from a homeowner mortgage. In my view that makes it completely inconsistent to regulate a buy-to-let mortgage side-by -side a consumer mortgage. “The debate we need to have around
this is to do with the limits the state has to intervene in the free choices an individual might make in their commercial activity. It’s an issue that I think will continue to be discussed.”
30 mortgAge introducer DECEMBER 2010
nexT sTePs Heron is keen that discussion be considered carefully by the Financial Services Authority, Treasury and industry to avert any unintended consequences restricting the market further. And with Paragon now lending again,
Heron is undoubtedly in a stronger position to influence policy in the future. Indeed, he has recently been announced as the new chairman of the Intermediary Mortgage Lenders Association which will give him another platform from which to engage with the FSA and Treasury on the industry’s behalf. It’s about working together as an
industry and improving the market for lenders, brokers, landlords and consumers. “The reason we got away from a
monoline mortgage market where building societies as a cartel set the rate and mortgage queues were normal was that with deregulation of the financial markets [in the late 80s] competition was allowed to flourish,” he says. “But if we seek to curtail diversity and
competition, not only will there be less finance available for consumers and buy-to-let landlords, there will also be a problem for UK Plc.” How he fares in the fight to fix this
problem only time will tell, but the tale of Paragon’s return to fortune bodes well. n
Age: 51 Married, no kids Lives: Sevenoaks, Kent Educated: University of Warwick, History and Politics
Career 2003-present: director of mortgages, Paragon Group 1997-2003: managing director, Paragon Mortgages 1990-97: marketing director, National Home Loans 1986-90: regional manager, National Home Loans 1983-86: assistant manager, Leamington Spa Building Society 1980-83: graduate trainee, Nationwide Building Society
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