Paragon, which has been diversifying its business from its core buy-to-let mortgage market, made a pretax profit of 69.4 million pounds in the six months ended March, down from 69.5 million pounds a year earlier.

The company raised its interim dividend by 9.3 percent to 4.7 pence per share. Its return on tangible equity, a key measure of profitability, improved to 13.5 percent from 12.7 percent a year ago.

New buy-to-let lending fell to 556.2 million pounds in the six-month period from 823.6 million pounds a year earlier.

Origination flows over the last year in the group's core buy-to-let mortgage market have been heavily disrupted by Britain's stamp duty changes, which saw landlords scrambling to complete purchases.

Buy-to-let is a form of residential investment in which you buy a property, typically with a mortgage, with the view of renting it out.

In the final months of 2016 the buy-to-let market also saw lenders tightening criteria ahead of the Prudential Regulation Authority's (PRA) underwriting changes.

Paragon's buy-to-let lending pipeline, however, more than doubled to 742.3 million pounds, allowing it to raise its lending volumes expectation to 1.25 billion pounds for the year, from 1.1 billion pounds.

"The biggest area of growth for us has been in the more complex, professional end of the market... landlords might have multiple properties or they might have properties with a particular focus such as the student market," Chief Executive Nigel Terrington told Reuters.

"Regulatory changes like the mortgage interest relief and changes in the PRA underwriting rules will push more business towards these more complex professional landlords," he said.

Paragon said asset finance lending rose to 106.6 million pounds from 57.7 million pounds a year earlier.

"Asset finance generally is a fairly good barometer of the economy... What we've clearly seen is the UK economy had a pretty positive period even allowing for Brexit," Terrington added.

Paragon's retail-funded lending bank, which was launched the in 2014 to enable the company to diversify beyond the mortgage market, saw deposit levels rise 64.6 percent to 2.35 billion pounds.

Shares in Solihull, West Midlands-based Paragon were up nearly 1 percent at 476.6 pence at 0821 GMT on the London Stock Exchange, in line with Europe's banking sector.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Sunil Nair and Amrutha Gayathri)

By Noor Zainab Hussain