Paragon Banking Group confirms FY26 guidance as lending advances rise 4.3%

Paragon Banking Group Plc (LON:PAG) has published its Q3 trading update based on business performance for the nine months from 1 October 2025 to 30 June 2026.

Nigel Terrington, Chief Executive, said:

“Paragon’s trading continues to be strong, with exciting new growth opportunities building on the underlying strength of the business. Credit performance remains excellent, and we are achieving good margins and operating leverage delivered through the strength of our franchises and our ongoing tight control of costs. The disposal of our SFS business completed as expected on 10 July, further enhancing our capital position and materially simplifying our operational model.

We are confirming our guidance for the current year and remain well positioned to deliver further growth in FY27 as these new developments roll out.”

Financial and operational highlights

The Group has continued its strong performance, with volumes, margins, costs and capital in line with our expectations, and our guidance for FY26 is unchanged.

Aggregate new advances for the nine months to June, across both our Mortgage and Commercial Lending segments, were up 4.3% year-on-year at £2.06 billion (2025 Q3: £1.98 billion).

The net loan book grew by 3.0% over the twelve months to 30 June 2026, however, excluding the run-off effects of the legacy portfolio, the underlying growth rate was 6.1%.

Mortgage advances for the nine months were up 1.2% from last year’s level at £1.12 billion (2025 Q3: £1.11 billion). New business activity was slower in April and May, with buy-to-let demand remaining sensitive to market interest rate movements and reflected in our guidance update at the half year. June’s application flows returned to more normal levels, with the pipeline standing at £0.62 billion at the month end.

Customer retention in buy-to-let remains strong. The annualised redemption rate was 8.1% for the first nine months of the year, reflecting the run-off of the legacy portfolio.

In line with our diversification strategy, the growth rate in Commercial Lending volumes was up more strongly than in Mortgages, at 8.2% year-on-year, delivering £0.94 billion of new business (2025 Q3: £0.87 billion). Development finance demand remained slow in April and May, against the backdrop of both the conflict in the Middle East and interest rate uncertainty but rebounded strongly in June. The period end pipeline stood at £0.61 billion.

During the last quarter two new teams have joined Paragon. The first is focusing on broadening our reach to Agricultural clients in our SME lending division and the second team is developing bridging capabilities for the Group, with bridging representing a natural sister product to both our buy-to-let and development finance offerings. We expect to launch our first bridging products to a limited distribution during the first quarter of the new financial year, with a full roll-out planned for the new calendar year.

The credit performance of the portfolio remains strong. Buy-to-let arrears reduced by 10 basis points during the quarter to stand at 40 basis points at the end of June and within development finance, the trend reduction in impairment charges has continued.

Funding

Retail savings balances fell by £0.2 billion during the quarter to £15.1 billion, as further use was made of Bank of England repo facilities, which represent a particularly efficient means of managing liquidity requirements around other wholesale issuance. Post period end we also completed our second covered bond issue. The three-year bond priced inside the Group’s previous issue (at Sonia+50 basis points compared to Sonia+60 basis points for our first bond) demonstrating the ongoing strength of the Group’s wholesale funding franchise.

Capital

Following the period end, the Group also completed the sale of its SFS subsidiary, a subsidiary of its SME lending business focused on the leasing of municipal vehicles. In addition to a circa £27 million one-off gain, which will be excluded from underlying results, the disposal also covered circa £12 million of goodwill originally paid on the acquisition of the Five Arrows SME business in 2015.

During July, the Group also refinanced its Tier 2 bond, upsizing the issue to £200 million at a spread of 205 basis points to the five-year gilt – representing the tightest pricing seen for such an instrument and repeating the record execution seen with the Group’s inaugural AT1 issue earlier in the year, reflecting our strong reputation in the debt capital markets. The Tier 2 bond being replaced was priced at gilts + 395.6 basis points and further optimises the Group’s capital structure to support future growth and returns.

On a proforma basis, reflecting the SFS transaction and foreseeable distributions, together with the full H2 share buy-back, the Group’s June 2026 capital ratios were CET1 13.5%, Tier 1 15.2% and TCR 16.9%.

Guidance and outlook

Our guidance for our FY 2026 performance is unchanged from the half year: