Paragon Group Cos., the U.K.’s third-largest provider of mortgages to landlords, plans to raise as much as 250 million pounds ($410 million) in the third quarter through its first securitization since 2007.
Paragon, based in Solihull, England, resumed lending to landlords last year after a three-year break following the closure of credit markets and the nationalization of mortgage- lender Northern Rock Plc.
“We want to do an early deal to re-establish our securitization program,” Nigel Terrington, Paragon’s chief executive officer, said in an interview in London. “The securitization market has proven to be robust and recent new issues from first-time issuers have been highly encouraging.”
The proportion of households in England living in private rented accommodation in 2009-2010 rose to 16 percent, or 3.36 million households, its highest level for at least 30 years, according to the latest English Housing Survey published by the government in February. That represents a 73 percent increase since its record low in 1992. The proportion of owner-occupation in 2009-2010 fell to 67.4 percent, the lowest in 20 years.
“There are long-term structural changes in housing in the U.K.,” Terrington said. “Combined with the cyclical effects of the economic downturn and reduced supply of credit, that has all driven demand for rental properties.”
Government spending cuts, a sluggish economic recovery and the prospect of higher mortgage costs driven by rising interest rates are fuelling demand for rented accommodation.
Paragon borrowed 200 million pounds in September from Macquarie Group Ltd. in a four-year secured loan paying 287.5 basis points more than the one-month London interbank offered rate, or Libor on the amount borrowed. It now wants to securitize that loan in the third quarter, Terrington said.
Since May, when Paragon first said it was looking to resume lending, its shares have risen 19 percent, giving the company a market value of about 516 million pounds.
The portfolio to be securitized will reflect the fact that since Paragon resumed lending landlords have on average only been able to borrow 75 percent of the value of the property, compared with a higher proportion before the credit crunch, Terrington said.
Buy-to-let lending rose 22 percent last year to 10.4 billion pounds, more than double the 3.9 billion pounds lent in 2008, according to the Council of Mortgage Lenders. It’s less than 25 percent of the 45 billion pounds borrowed in 2007 ahead of the global financial crisis.
U.K. house prices have fallen 18 percent since their peak in the third quarter of 2007, according to the Lloyds Banking Group Plc’s Halifax unit, Britain’s largest mortgage lender.
Banks create mortgage-backed securities by pooling home loans and selling them to investors as notes, allowing lenders to raise capital more cheaply than by issuing unsecured debt.
The sale of U.K. residential mortgage-backed securities slumped to 10 billion pounds in 2009 from 60 billion pounds as the securitization market closed as a result of the global financial crisis, Terrington said.
Sales rose to the equivalent of about 28 billion pounds last year, according to JPMorgan. Completed deals in 2011 include Skipton Building Society’s 350 million-pound issue in its first securitization.
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