Some specialist lenders will continue to do well even if the housing market turns south as they will be able to rely on a better quality client base, says stockbroker Killik & Co. in a new note.
Although focused on listed buy-to-let specialist Paragon, it and peer Kensington should see more interest in their businesses by both clients and investors as the market continues to level off.“We believe that Paragon represents an excellent investment at 348p/share, because the group’s principal exposure is to the professional buy-to-let investor, which is a group that is typically not highly geared, and has a track record of holding property and remaining creditworthy throughout previous residential property downturns,” Killik states.
”We believe that the outlook for Paragon’s earnings growth is supported by the limited competitive impact on Paragon of the dominant players in the UK mortgage market."
"The major clearing banks such as HBOS and HSBC are becoming increasingly formulaic in their assessment of credit risk. They, and many other mass-market lenders,are increasingly unable to accommodate non-standard lending decisions, such as those that relate to long-term professional buy-to-let investors.”
What is also different, Killik continues, is the far lower average loan-to-value ratios in the sector.
It quotes Council of Mortgage Lender figures showing this is the case, including a far lower payment-in-arrears ratio than is the case for those borrowing money to buy their own living space.
Professional buy-to-let borrowers of the kind served by Paragon are also more interested in yields than capital gain, which means their businesses are less prone to knocks if house prices start weakening.IFAonline
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