Positive news of a slight upturn in house prices and an increase in demand for property loans have been well received by mortgage lenders and property companies.
For one Midlands-based independent mortgage and property loan lender, a dip in arrears on existing buy-to-let mortgages is also contributing to better than expected trading conditions at the start of their fourth quarter.
According to this month’s Shareleague tables, Solihull-based Paragon Group of Companies plc – a leading provider of buy-to-let mortgages – has jumped from the intermediary to the super table. At the end of July, the company was operating with a market capitalisation in excess of £310 million.
At the end of July, Paragon Group of Companies plc reported operating profits for the nine months to June 30, 2009, of £30.2 million and commented while trading conditions have remained difficult, the number of buy-to-let mortgage borrowers getting into arrears has dipped slightly. The company also believes improved customer retention, in part due to fewer mortgage redemptions in a tighter market, has benefited the company’s trading position.
Matt Waddell, head of corporate finance at PricewaterhouseCoopers LLP in the Midlands, says: “In recent weeks there has been some cause for cautious optimism for the property sector and this is starting to improve the trading performance of some well-managed businesses.
“Of course, it is early days and with unemployment figures expected to continue to rise in the months ahead, which could force more borrowers into arrears, we should not assume minor improvements in market conditions are part of a more sustained recovery.
“Demand for new buy-to-let mortgages remains low and while now appearing to be at manageable levels, arrears remain an issue for the market. In view of this, some mortgage lenders are choosing to introduce new services to beat the downturn.
“This flexibility, backed by a solid and well-considered strategic vision, will continue to underpin the best-performing companies in the sector in the months to come.”
The best-prepared regional companies are already taking active steps to mitigate the effects of the recession, by reducing costs where possible and keeping a close eye on their debt requirements into 2010. However, some businesses could still be doing more as Matt Waddell explains:
“We are finding businesses are talking to their lenders much more than in the past and in most cases they have a detailed view of their debt requirements for the year ahead. However, some are still hiding their head in the sand and have not yet prepared comprehensive, considered lender submissions. They need to take action before it is too late, particularly if they are hoping to renew debt facilities during the next 18 months.
“Smaller businesses with a relatively high debt requirement are among those most likely to be under-prepared.
“Many are working hard just to survive the recession and have not dedicated adequate time to considering how they will meet the rising cost of debt in the year ahead.”
The good news for the property sector has continued since the start of August as the Halifax halved its forecast for how far house prices will fall this year.
“Its latest monthly report on the housing market revealed a further rise in prices during July, due to increased demand combined with a shortage of availability.