Buy-to-let lender Paragon Group recorded operating profits of £30.2 million in the last nine months despite constrained market conditions.
The Solihull-based group said conditions had not changed in the last quarter, leaving it on course to post a healthy profit in the full year.
In a trading statement, the company said it had benefited from interest rates remaining at the record low of 0.5 per cent throughout the three months to June 30.
Meanwhile, Paragon said conditions remained subdued, as the recession continues to take its toll on the finance sector and analysts said the group may struggle when rates are increased.
Paragon said: “Whilst economic conditions have remained difficult over the period, requiring continued close management of the portfolio, the combination of low interest rates and sound account management by our experienced team has ensured that arrears levels have remained low when compared with market wide data.
“Income for the third quarter is slightly ahead of our expectations as a result of the low redemption rate, whilst costs were in line with our expectations,” it continued.
“The charge for bad debts for the quarter was lower than the average quarterly charge for the first half of the year as a result of the more stable arrears position and the success of our collections methodology.”
The group, which has more than £11?billion of assets under management and recorded profits of £91 million in the 2007 financial year, said cash generation remained strong over the period and free cash balances increased to £89.2 million Impairment losses between April and June were lower than in the first half, while its share of loans more than three months in arrears edged lower to 1.71 per cent.
Pre-tax profits for the nine months to June 30 were £31.4 million, around 20 per cent lower than the same period last year when exact comparisons were not given.
Directors expect interest rates to remain at the current low levels until at least the end of the calendar year, which will continue to have a positive impact on borrower payment performance.
It continued: “We do not expect a significant reopening in the near future, hence we expect competition to remain subdued and mortgage redemption rates to remain low.”
Shares in Paragon rose almost six per cent in early trading as markets welcomed the positive tone of the firm’s update. It has also made moves to bolster its balance sheet through buying up £23.2?million of its debt in the market at around half the cost, which will allow it to book an extra £11.5 million in second half profits.
But some analysts predicted problems when interest rates go back up.
Numis analyst James Hamilton said “With buy-to-let investors paying interest only mortgages linked to the 0.5 per cent base rate they can afford to service their minimal interest obligations.
“These investors are however the living dead as it is implausible that the income from these properties will ever be enough to fund principal repayments.”