Credit crisis hits mortgage lender
- 00:02:20
- ITN
Credit crisis hits mortgage lender
Mortgage firm Paragon has admitted it is facing funding uncertainties after costs soared during the summer credit crunch.A statement from the company, the UK's third largest buy-to-let lender, alarmed investors as shares in the company tumbled by almost half.The Solihull-based firm said: "The deep turmoil in the credit markets is affecting the normal financing activities of the business."Paragon has no depositors and raises its funding by "securitising" - bundling up and selling on - its loans.Cash for new lending is also financed by a £2.3 billion "warehousing" facility from a banking syndicate.But since the summer credit crisis - sparked by slumping confidence in bonds based on high-risk US mortgages - the securitisation market has effectively closed.And banks are imposing tougher lending criteria, prompting Paragon to warn that terms offered for the renewal of its new lending fund next February were "not attractive".The lender also has a £280 million corporate lending facility due for repayment in February, but the renewal terms offered are so poor that the bank is considering turning to shareholders for the cash to give it more time to consider its funding options.Chief executive Nigel Terrington said the credit crunch had been "immensely disruptive".He said: "While we expect the credit markets to recover from the current distressed position during 2008, the timing and the extent of the recovery will have an impact on our outlook."The group, which is cutting more than 60 jobs from its Epsom office, warned it would have to scale back its lending "significantly" if it was unable to secure new financing.The plunge in the group's share price came despite record profits of £91 million for the year to September 30, before the full impact of the summer's financial turmoil became clear.© Independent Television News Limited 2007. All rights reserved.
ITN | November 20, 2007
