UK's Paragon Banking lifts margin outlook, flags softer consumer sentiment

By Simone Lobo

June 2 (Reuters) - British buy-to-let lender Paragon Banking Group on Tuesday forecast annual net interest margin at the upper end of previous outlook, but flagged softer consumer and business sentiment amid political and geopolitical uncertainty.

The volatility along with an uncertain interest rate outlook has pushed borrowers and businesses into wait-and-see mode, forcing Paragon to reprice mortgages six times more often than usual, CEO Nigel Terrington told Reuters.

The specialist bank, which provides mortgages for landlords and loans for business customers, also took an impairment of £21.5 million related to development finance loans.

Explaining the hit, Terrington said, "Big costs like the interest rates and costs of building a house all went up a lot...and then house prices were a little flat and soft. So you had all of that combination coming together."

The bank expects to report net interest margin of 300 basis points for fiscal year 2026, below 313 basis points reported a year ago, but on the upper end of previous outlook of 290 to 300 basis points.

The company attributes the improved margin outlook to cheaper wholesale funding over retail savings but anticipates tightening in the second half.

While the bank may beat its margin forecast in the second half, it has taken a number of measures to mitigate deposit market pressure over the last six months that may be harder to repeat, said Jefferies analysts.

However, the analysts added the management is "willing to pull levers in a sensible fashion to manage near-term funding headwinds."

Shares of the company fell as much as 7.5% in the session after it also reported a 2.5% fall in underlying profit for six months ended 31 March, 2026.

(Reporting by Simone Lobo in Bengaluru; Editing by Vijay Kishore)