Paragon Banking Group Reconfirms FY26 Guidance as Lending Advances Reach £2.06 Billion

Strong trading keeps Paragon on course

Paragon Banking Group PLC has reconfirmed its full-year guidance after reporting continued lending growth, strong credit performance and capital-enhancing transactions during its third quarter.

Aggregate new advances across the Mortgage and Commercial Lending divisions reached £2.06 billion for the nine months to 30 June 2026. That was 4.3% higher than the £1.98 billion recorded in the comparable period.

The net loan book grew by 3.0% over the 12 months to June. Excluding the run-off of Paragon's legacy portfolio, underlying growth was a healthier 6.1%.

Management said volumes, margins, costs and capital were all in line with expectations. Importantly, every item of FY26 guidance remains unchanged from the half-year stage.

The original company announcement therefore reads as a broadly reassuring update. There are still areas of sensitivity, particularly within buy-to-let mortgages and development finance, but June's recovery in application activity provides some encouragement.

Paragon's Q3 figures at a glance

Metric	Nine months to June 2026	Comparative or change
Aggregate new advances	£2.06 billion	Up 4.3%
Mortgage advances	£1.12 billion	Up 1.2%
Commercial Lending advances	£0.94 billion	Up 8.2%
Net loan book growth	3.0%	12-month growth
Underlying loan book growth	6.1%	Excluding legacy run-off
Mortgage pipeline	£0.62 billion	At 30 June 2026
Commercial Lending pipeline	£0.61 billion	At 30 June 2026
Buy-to-let arrears	40 basis points	Down 10 basis points in Q3
Retail savings balances	£15.1 billion	Down £0.2 billion in Q3

A basis point is one-hundredth of a percentage point. Paragon's buy-to-let arrears rate of 40 basis points is therefore equivalent to 0.40%.

Commercial Lending leads the growth

Commercial Lending was the stronger source of new business during the period. Advances increased by 8.2% to £0.94 billion, compared with £0.87 billion a year earlier.

Development finance demand was slow during April and May. Paragon attributed this to the conflict in the Middle East and uncertainty around interest rates. Activity rebounded strongly in June, leaving the period-end Commercial Lending pipeline at £0.61 billion.

Mortgages delivered more modest growth. Advances rose by 1.2% to £1.12 billion from £1.11 billion, with buy-to-let demand remaining sensitive to changes in market interest rates.

Activity was slower in April and May, as previously reflected in the guidance issued alongside Paragon's half-year results and interim dividend. June application flows returned to what management described as more normal levels, and the mortgage pipeline ended the month at £0.62 billion.

Customer retention remained strong. The annualised buy-to-let redemption rate was 8.1% for the first nine months, although this figure includes the effect of the legacy portfolio running down.

New products offer additional growth routes

Paragon added two new teams during the quarter as it continued to diversify its lending activities.

One team will broaden the group's reach among agricultural customers within its small and medium-sized enterprise lending division. The second is developing bridging finance capabilities.

Bridging finance is short-term lending typically used while a borrower arranges longer-term funding or completes a property transaction. Paragon sees it as a natural companion to its existing buy-to-let and development finance products.

The first bridging products are expected to launch through limited distribution during the first quarter of the new financial year. A full roll-out is planned for the new calendar year.

These initiatives will not transform the numbers immediately, but they give Paragon additional ways to use its specialist lending expertise. Execution and credit discipline will matter as the products are introduced.

Credit quality remains a clear positive

Credit performance continues to be one of the update's strongest features.

Buy-to-let arrears fell by 10 basis points during the quarter to 40 basis points at the end of June. Paragon also reported that the downward trend in development finance impairment charges had continued.

Impairments are charges taken to reflect expected losses on loans. Lower charges can support profitability, although the company did not disclose a specific impairment figure in this update.

For investors, growing lending without a corresponding deterioration in credit quality is an important combination. It suggests that Paragon's expansion has not, based on the disclosed figures, come at the cost of weaker portfolio performance.

Funding costs and capital transactions

Retail savings balances fell by £0.2 billion during the quarter to £15.1 billion. This reflected increased use of Bank of England repurchase facilities, known as repo facilities, to manage liquidity around wholesale funding issues.

After the period end, Paragon completed its second covered bond issue. The three-year bond was priced at Sonia plus 50 basis points, compared with Sonia plus 60 basis points for its first issue. Sonia is the Sterling Overnight Index Average, a reference interest rate used in sterling financial markets.

Paragon also refinanced and increased its Tier 2 bond to £200 million. The new issue was priced at 205 basis points above the five-year gilt, compared with 395.6 basis points for the bond it replaced. Tier 2 debt forms part of a bank's regulatory capital and can absorb losses under specified circumstances.

The lower spread is potentially supportive because it indicates more favourable pricing than on the previous instrument. The exact impact on future interest costs was not disclosed.

SFS disposal simplifies the business

The sale of Paragon's SFS subsidiary completed on 10 July. SFS focused on leasing municipal vehicles and formed part of the group's SME lending business.

The transaction generated a one-off gain of approximately £27 million, which will be excluded from underlying results. It also covered approximately £12 million of goodwill originally recognised when Paragon acquired the Five Arrows SME business in 2015.

Management said the disposal materially simplifies Paragon's operating model and further enhances its capital position.

On a pro forma basis, including the SFS transaction, foreseeable distributions and the full second-half share buyback, Paragon's June capital ratios were:

• Common Equity Tier 1, or CET1: 13.5%
• Tier 1: 15.2%
• Total capital ratio: 16.9%

CET1 is a bank's highest-quality regulatory capital and provides a key buffer against unexpected losses.

FY26 guidance remains unchanged

FY26 metric	Guidance
Mortgage Lending advances	Lower end of £1.5 billion to £1.7 billion
Commercial Lending advances	£1.2 billion to £1.4 billion
Net interest margin	Around 300 basis points
Operating expenses	Around £185 million
Return on tangible equity	Mid-15% to 20% range
Share buybacks	Up to £100 million

Net interest margin measures the difference between interest earned and interest paid, relative to interest-earning assets. Return on tangible equity, or RoTE, measures profitability against shareholders' tangible equity.

What investors should watch next

The main positive is consistency. Paragon has maintained growth, preserved strong credit quality and reconfirmed guidance while completing transactions designed to improve funding and capital efficiency.

Commercial Lending is growing faster than Mortgages, while agricultural lending and bridging finance could broaden future opportunities. The SFS disposal should also leave a simpler group with additional capital flexibility.

The main caution is that parts of the lending market remain sensitive to interest rates and external uncertainty. Mortgage and development finance activity both slowed in April and May, even though June was stronger. Investors will want to see whether that improvement continues and converts into completed advances.

Paragon will publish its full-year results for the 12 months ending 30 September 2026 on 1 December 2026. Those results should provide a fuller test of margins, costs, credit performance and the pace at which its newer lending initiatives are developing.