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Paragon Buy to Let Mortgage Lender Crashes 40% On Credit Crunch

Companies / Banking Stocks Nov 21, 2007 - 03:13 AM GMT

By: Nadeem_Walayat

Companies Paragon , Britian's third largest buy to let mortgage financing company crashed 40% yesterday and appears to be following a similar path to Northern Rock Bank. Both financial institutions relied heavily on the credit markets to finance loans to mortgage borrowers and both have been hit by the credit crunch. However not being a bank with no customer base, Paragon appears did not go the whole hock down the short-term funding route as Northern Rock and hence has managed to stumble along until yesterday.


Still not being a bank, Paragon was faced with even higher interest rates than the interbank market rate, which forced Paragon to make yesterdays announcement, even before the UK housing slump kicks into gear. Paragon is being forced to go to shareholders for £280 millions to save the company from going bust. However once the avalanche of buy to let selling begins the number of mortgage defaults is expected to explode and the rights issue may just be a stop gap to much greater difficulties for the company during 2008.

Paragon chief executive Nigel Terrington is still banking on a strong Buy to Let market during 2008 and unfreezing of the credit markets to enable the company to resume normal lending business.

However the risks are that if the freeze continues at anywhere near current levels than it is only a matter of months before Paragon is forced to liquidate itself.

Other banks at potential risk due to the credit crunch are Alliance and Leicester and Bradford and Bingley, and undoubtedly expected to hit the whole financial sector for some time.

UK Housing Market Forecast for 2008-09 - As of 22nd August 2007
UK House Prices to fall by 15% over two years, falling prices to be accompanied by cuts in UK interest rates. (22nd Aug 07),

 

By Nadeem Walayat
Copyright (c) 2005-07
Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of analysing and trading the financial markets and is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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