In an excellent sign of the gradually increasing health of the UK property market one of the largest buy-to-let lenders in the housing boom is to return to the market for the first time in 18 months.

Paragon was badly hit by the credit crunch, profits dived and it decided to withdraw from the buy-to-let market in February 2008. But now it wants to re-enter the sector, a move made possible by a £200m debt facility provided by Macquarie Bank.

The loan gives Paragon the money it needs to write new loans up-front until it has a large bundle of mortgages which it will then convert into securities, raising fresh funds to lend. Paragon is offering mortgages to investors with a minimum of a 25% deposit.

At the moment rents are rising with demand from tenants increasing and large numbers of previous landlords are selling up. At the same time, the Land Registry has reported a slight rise in house prices in England and Wales in August.

Competition in the mortgage market has been sorely lacking, particularly as specialist lenders have largely been unable to secure funding or government support to enable them to compete against High Street lenders. Nowhere is this more evident than in the private rental sector where tenant demand is strong and expected to grow.

This is an increasingly important section of the UK housing market and competition is vital for a healthy and vibrant buy-to-let market.

The Paragon move comes shortly after the Lloyds Banking Group announced it was cutting its options for buy-to-let investors.

It is good news that another lender has come back in to the market after the Lloyds announcement that they have cut the amount they will lend to investors. Ultimately, Paragon will create some much needed competition in the buy-to-let market.

In other news, the latest data from the Land Registry has shown a slight rise in property values in August in England and Wales. The average home in England and Wales rose in value by 0.3% in August compared with July, to £167,423.

This put the average annual price rise at 6.7%, led by rising prices in London (11.4%), although all regions saw values increase year-on-year. The number of properties sold has also been rising from a low base, the Land Registry said.

The Council of Mortgage Lenders (CML) has warned that households will soon face renewed pressure on their ability to access credit as banks find their state support gradually removed over the coming year.

Bank of England data from June showed that lenders were using £285 billion of funding support from taxpayers to finance the credit extended to households and businesses. The emergency funding is due to expire over the next 18 months.

This means that the financial sector is now approaching the point where institutions will have to begin repaying government-supported funding put in place at the height of the crisis. This will inevitably reduce the amount of credit that can be advanced to the wider economy.

The CML comments came on the back of figures showing that total mortgage lending for August fell to £11.4 billion, the lowest level in 10 years.

A second much smaller ‘credit crunch’ could depress house prices as buyers struggle to secure mortgages and as the cost of credit rises. The Coalition’s planned austerity measures are also likely to weigh on consumer confidence.

The CML’s chief economist said, “We face the prospect of a difficult second half of the year. The extent of the imminent public sector spending cuts has become more clear. Consumers remain cautious and household incomes will remain under pressure.”

The fall in mortgage lending comes amid reports from lenders, including Halifax and Nationwide, that house prices had fallen in recent months, following a surprising rebound in 2009.

While activity is at higher levels than seen in the depths of the financial crisis in late 2008 and early 2009, it is still exceptionally low on any historic comparison. The rise in prices has unsurprisingly run out of steam as a result and some indicators point to modest falls.

Demand is subdued and there are signs of more property coming on to the market following the abolition of home information packs.

The CML also said that a slower housing market and slowing economic growth in the second half of the year should encourage the Bank of England to keep interest rates at very low levels for an extended period.