In an exclusive interview with BTL Insider, Richard Rowntree, managing director for mortgages at Paragon Bank, talks about professional landlords’ calculated approach to BTL investments, and shares the lender’s complete digital transformation journey it is currently embarked on.
Despite the BTL market having suffered some hits over the last few years, Richard said that the bank has gone from strength to strength, stating that Paragon has seen record levels of business volumes and profit over the past four years.
Most recently, Paragon Bank’s half-year results for the six months to 31st March revealed that its BTL loan book grew to £12.9bn, up 4.5% compared to the same period last year.
According to Richard, the lender has, and is still seeing significant demand for specialist BTL finance, particularly from portfolio landlords, as the PRS continues to professionalise.
“The supply/demand imbalance is still massive in the PRS, and there are core fundamentals that are driving this demand, including the ageing population, changing household formation, immigration, and first-time buyers being unable to afford their own homes,” he said.
“There’s a move towards a professional market, and we’re definitely seeing this in our lending numbers — for example, three quarters of what we do now is limited company lending.
“What our data is showing is that professional landlords are expanding their portfolios, but also reshaping them.”
When it comes to securing BTL finance for their properties, Richard highlighted that professional landlords are taking a calculated approach.
“Although we lend at up to 75% LTV, most of the demand from seasoned property investors is for sub-70% LTV loans,” Richard confirmed.
“A lot of landlords have been through this cycle a few times, have experienced downturns and been through the financial crisis and previous recessions, so they don’t want to over-gear themselves.
“Moreover, the majority of our landlords are still opting for five-year fixes to maximise their affordability, even if they think rates might come down during this period of time.”
These clients are applying the same cautious mentality when expanding their BTL portfolios, taking into consideration a variety of factors, including yield, the location of the assets, and general trends they are seeing in the market.
“Landlords buy what they know — our research shows that 73% of our client’s BTL properties are located within maximum 30 miles from their residence. This is because they can manage these properties themselves, and also because they know these areas so well.”
While the most popular type of BTL properties among Paragon’s landlord clients continues to be Victorian terraced or semi-detached dwellings — as they are highly sought-after by young professionals and families, as they offer bigger room sizes, good build quality and decent outdoor space — Richard confirmed that HMO investments are becoming more popular, thanks to their high rental yields.
However, he warns that HMOs are more suited to experienced landlords, as these types of properties bring additional challenges to the table — and it is why Paragon does not lend to any HMO landlords with less than two years of experience.
“There are several things you need to take into account, such as higher running costs in terms of bills and property insurance, as well as the higher regulations that come with these properties. That’s why landlords need to go into this market with their eyes wide open,” states Richard.
Building on from its success over the years, Richard shared that the lender has been working behind the scenes for years on a complete digital transformation journey to further improve the bank’s service levels and performance across all divisions.
According to the firm’s half-year results statement, the overarching plan of digitising the business includes a thorough review and upgrade of all systems and operational processes.
“We didn’t want to just digitise our current process — we’re stripping things back to the core, and looking at rebuilding it like we would if we were starting this from scratch,” Richard elaborated.
“There are many platform options available in the market, but they tend to be for generic-scale lenders; this doesn’t work for us.
“We have different things, including our own in-house valuers, manual underwriting etc. so we needed something different, but there’s nothing out there that could give us what we need, so we decided to build it ourselves.”
One significant part of the digital transformation journey is a new upgrade covering the process from application to offer, which is expected to be rolled out from the second half of Paragon’s financial year.
The new platform will include API technology to enable brokers to have real-time access to data related to an application, as well as handle admin tasks on behalf of the bank’s employees, thus enabling them to focus more on the human-touch aspects of lending.
“One of the things we’re keen to do is have this technology handle these non-value tasks where people are just moving paper around, and instead free that time to allow them to help our customers and brokers. Moreover, we’ll be able to make decisions quicker, and give brokers and clients a faster answer for their applications,” said Richard.
“Our digital transformation journey will take Paragon to a whole different level. The first big part of this will be unveiled in the autumn, so watch this space.”
