Paragon Bank has expanded its range by venturing into the flourishing Build-to-Rent (BTR) sector. This move signifies a notable expansion for the bank, which is now offering substantial loan facilities to back the procurement and construction of BTR projects.

Understanding Build-to-Rent

Before we delve into the specifics of Paragon Bank’s proposition, let’s understand what Build-to-Rent is. BTR developments are designed specifically for renting out to tenants rather than for sale. This is an emerging market in the UK, where developers and investors see potential for steady rental income streams from properties built solely for the rental market.

Paragon’s Proposition

Paragon Bank is offering loans ranging from £10 million to £35 million, catering to the acquisition and development phase of BTR schemes.

Paragon’s lending arm extends across England, Scotland, and Wales, providing loan terms that can last up to 33 months. They offer a maximum of 65% gross development value in loans, ensuring developers have enough leverage to kick-start their projects. While the bank has not specified the interest rates, the leverage ratio offers a glimpse into the bank’s competitive offering.

A New Funding Model

Neal Moy, the managing director of Paragon Development Finance, emphasizes that their approach differs from the typical BTR funding model. Traditional models often involve either forward funding or forward purchasing by developers, which, while beneficial in certain respects, may cap the potential profits. Paragon’s model aims to mitigate this by allowing developers to hold on to the properties post-completion, thereby enabling them to harvest sustained income from these assets.

The BTR Market Landscape

The UK’s BTR sector has shown significant growth, with over 90,000 units delivered and upwards of 50,000 in development, as per the British Property Federation. Notably, the sector is broadening to include Single Family Housing (SFH), which now makes up over 10% of the market. The last year and a half have seen increased focus and support for SFH within the BTR segment.

Paragon’s Vision and Experience

Simon Dekker, Paragon’s senior relationship director, notes that the UK’s housing market demands are changing, and BTR offers a viable alternative to traditional homeownership. Paragon’s history of supporting the Purpose-Built Student Accommodation (PBSA) market positions them as a seasoned lender ready to contribute their expertise to the BTR sector.