Shares in Bradford & Bingley, the buy-to-let mortgage lender, surged more than 6 per cent after it raised £4.2 billion by selling two loan books backed by property assets.

The move provides B&B with additional liquidity and will free it up to pursue more profitable lending business, it said.

The mortgage bank, seen as exposed to funding pressures in the wholesale markets, said it had sold off the loans after a review in April.

It denied suggestions that it was suffering liquidity problems or coming under pressure to borrow capital in the inter-bank lending markets.

Shares rose 15.5p to 272.5p as analysts and investors welcomed the cash proceeds.

Losses linked to the disposals would be as much as £40 million, B&B said.

Alex Potter, the Collins Stewart analyst, said: "We continue to believe that B&B's funding position is the strongest of the three small mortgage banks, showing longer maturities than the peers on its wholesale funding."

But Mr Potter moved B&B to a "hold" recommendation from a "buy" and cut earnings estimates by 6 per cent for next year and 2009.

"We do not believe that we are yet at the bottom for the UK banks sector and the more retail-exposed, wholesale-funded (and also capital markets geared) names will continue to lead the sector down," he added.

Separately, Paragon, the rival mortgage and consumer finance group, scrapped its final dividend payment to pave the way for a possible rights issue after failing to secure a deal for more conventional funding from its banks.

The group gave warning that the current environment was “immensely disruptive” and was driven by market-wide funding concerns.

B&B sold its £2.2 billion Housing Association loan book to Dexia, the Belgian group.

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