Buy-to-let Paragon Is Another Credit Crunch Victim

Problems in financial markets and the slowdown in property looks as though they’re going to have an impact on the buy-to-let market in Britain, leading to a wider ranging implosion of the property market.

The third biggest buy-to-let lender in Britain, Paragon, has revealed that it is a victim of the global credit crunch, following the collapse of Northern Rock. In a similar to the north-east banking giant, Paragon said that it could no longer borrow enough money to sustain its business. The consequence of this is that it would be cutting the number of buy-to-let mortgages on offer by 50% next year, and experts expect other lenders to follow suit.

Further concerns about the future of buy-to-let mortgages were raised by an announcement by Bradford & Bingley that it had sold off two commercial mortgage loan books. B&B is the biggest buy-to-let mortgage lender in the UK. The impact of the sales might be a shortage of this type of home loan which might take buyers out of the housing market, and lead to further falls in house prices in most regions.

There are more and more impacts on consumers and the wider economy as a result of the credit crunch that is affecting financial markets worldwide.

Banks are having increasing trouble borrowing money at reasonable interest rates, which has meant the withdrawal of home loan deals and the rejection of more credit cards and loans than ever before.

The news from Paragon was unexpected in the City, but shares quickly fell by 50%. The company has high vulnerability to the credit crunch as it has no savings customers at all – unlike banks and building societies. All the money it needs it has to raise on the international money markets.

Bradford & Bingley said it had no problems raising cash for funding, saying that it commercial loans had been sold to move funding to the higher-margin residential mortgage market