Optimism Returns to UK Markets After 'Disruptive' Budget Period, Says Paragon Chief
Nigel Terrington, the chief executive of FTSE 250 lender Paragon Bank, has declared that optimism is beginning to pick up across the United Kingdom. This follows a period of dampened sentiment caused by rampant tax speculation during the second half of 2025.
In an exclusive interview with City AM, Terrington noted that despite it being early in 2026, the mood among businesses and investors is noticeably lifting. "Obviously we're only in January but I would say it feels more optimistic," he stated, highlighting a shift from the previous year's uncertainty.
Strong Financial Performance Fuels Confidence
Paragon Bank has provided markets with a promising snapshot of its first financial quarter, revealing substantial growth in lending activities. The bank recorded a significant 6.9 per cent increase in total lending, reaching £724 million for the three months ending 31 December 2025.
This growth was primarily driven by an impressive 17.6 per cent surge in commercial lending, which climbed to just under £300 million. Terrington emphasised the bank's strategic focus, saying, "We have a diversification strategy, we're looking to grow our commercial division."
Housing Market Shows Signs of Recovery
The Paragon chief noted a particular uptick in mortgage activity following what he described as a "difficult last year." He explained that sentiment around the housing market had been weak, largely due to disruptive budget speculation about potential tax changes. "That's kind of behind us now," Terrington observed, suggesting that clarity is returning to the market.
This recovery comes after businesses across various sectors reported subdued demand in late 2025, as speculation intensified about how Chancellor Rachel Reeves would address public finance challenges. London's property market was especially affected, with inner capital house prices experiencing their sharpest decline since the global financial crisis.
London Property Market Challenges
According to data from the Office for National Statistics, Kensington and Chelsea recorded the most dramatic fall, with prices plunging 16.3 per cent to an average of £1.19 million in November. This decline preceded Chancellor Reeves' Autumn Budget announcement of a new high-value council tax surcharge for properties valued over £2 million, scheduled to take effect in April 2028.
During the Treasury's extensive briefing period, one proposed policy that generated significant discussion was a potential national insurance levy on landlords. Reports suggested the Chancellor was examining proposals to remove the exemption on earnings from property, pensions, and savings from national insurance contributions.
Paragon's Specialised Lending Performance
Despite these market challenges, Paragon reported that its pipeline for buy-to-let lending showed modest growth, increasing by 0.4 per cent to £425 million during the quarter. Year-on-year, the bank's buy-to-let pipeline ended the quarter 4.4 per cent higher at £692 million, indicating resilience in this specialised lending sector.
Motor Finance Redress Scheme Developments
Paragon Bank is among numerous British financial institutions awaiting the Financial Conduct Authority's final motor finance redress scheme. The bank significantly increased its provisions to £26 million, up from £7 million previously, during its 2025 full-year results in response to the car mis-selling scandal.
This move aligns with other major City institutions that have been compelled to increase their funds following updates from the financial watchdog. The FCA concluded its consultation on 12 December, with a comprehensive outline of the redress scheme expected in early 2026.
Terrington offered his perspective on the developing situation: "I think people might regard the current proposals as a radical compromise because at one point some of the figures that were being thrown around were huge – like £40 billion." He added, "I think many might argue that the FCA is trying to deliver a result that is kind of balanced here in many ways... kind of like the art of the negotiation."
The Paragon chief's comments reflect a broader sense of cautious optimism returning to UK financial markets as uncertainty around tax policies begins to clear and businesses adapt to the new economic landscape.
