How important is Bradford & Bingley? The bank is the tenth biggest mortgage lender in the UK and the biggest buy-to-let lender in the mortgage market. Northern Rock was the fifth biggest lender.

What went wrong? All lenders are having a difficult time because of the credit crunch. Much of the money Bradford & Bingley lends to homebuyers comes from selling packages of existing mortgages to financial investors.

But the appetite for this type of product stalled after thousands of borrowers in the US defaulted on their repayments – the sub-prime crisis – sending shock waves through financial markets.

Many institutions had bought this type of product and were hit hard when borrowers failed to pay. Bradford & Bingley has also been hit by defaults on its own loans, particularly by buy-to-let investors. Stiffer competition from rival banks is also cutting B&B's cash supply as fewer customers are choosing its current accounts.

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Is this another Northern Rock? Not yet. Northern Rock’s problems were more acute. It relied more on borrowing from other banks and less on deposits from savers. Northern Rock failed to get the funds it needed to continue as a viable business.

Bradford & Bingley is raising a large chunk of cash by selling part of the business to Texas Pacific Group, a private equity group, which is investing £179 million in the business. It will also seek additional cash from shareholders and has the cushion of a £2 billion loan facility from another bank, which it has not yet used.

Would it be prudent to withdraw my savings? The government-backed Financial Services Compensation Scheme (FSCS), improved after the run on Northern Rock, now guarantees deposits of up to £35,000 with each financial institution.

This means that in the unlikely event of a bank or building society going bust, the first £35,000 you hold with that bank will be covered. B&B has offered some attractive savings rates in recent months as it has tried desperately to attract deposits to boost funding. Its best buy rates – such as its fixed-rate ISA at 6.25 per cent – have been popular.

Rates at Bradford & Bingley are likely to remain high as it tries to retain cash from depositors who may be unnerved by its financial travails. Anyone with concerns would be wise to spread funds across a range of savings brands to ensure that no more than £35,000 is invested with a single provider. Remember that financial institution refers to each banking group, not the individual brands. So, for example, the FSCS could only cover £35,000 within HBOS, which owns the Halifax, Bank of Scotland and Birmingham Midshires.

Also, if consumers have their savings with the same bank or building society as their mortgage, and the provider goes bust, they will not be compensated in cash for the savings – rather, this amount will be shaved off their mortgage balance.

What does this mean for the mortgage market? The mortgage misery is not over.

Nationwide, the UK’s biggest building society, increased its fixed rates by a further 0.3 points yesterday, indicating that increasing repayments are here to stay for the foreseeable future.

Nationwide now charges 6.45 per cent for a two-year fixed-rate deal, or an extra £37 a month on a £150,000 home loan.

Like Northern Rock, Bradford & Bingley is likely to try to price itself out of the mortgage market until its balance sheet is back on track. This would mean even less choice, especially for first-time buyers with small deposits, as it is one of the few remaining lenders to offer deals for up to 95 per cent of a property’s value.

Rival lenders could face an increase in demand from borrowers choosing to shun Bradford & Bingley altogether. This is likely to put further upward pressure on rates, and increases the chances of other lenders withdrawing from the market or raising the cost of deals.

What does this mean if you have a mortgage with Bradford & Bingley? Borrowers with a conventional residential mortgage have no need to worry at the moment. A mortgage is a legally binding contract and borrowers will for now remain unaffected by yesterday’s announcements.

However, Bradford & Bingley is likely to tighten its lending criteria and may look to improve its financial position by improving margins and that could lead to increased rates on variable products.

What does it mean for shareholders? Bradford & Bingley shares have fallen by more than two thirds in the past six months, and by 40 per cent in the past month alone.

In an effort to raise some much-needed capital, the bank is set to hold a rights issue – where extra shares are issued and offered to shareholders at a reduced price.

Initially shareholders were told the price for the new shares would be 82p each, but after the shares fell to a record low of 60p yesterday this price has now been reset to 55p.

Keith Bowman, equity analyst at the independent financial adviser Hargreaves Lansdown, said: “Those whose portfolio is heavily weighted towards banking may think it is time to diversify; on the other hand, you may consider this a bargain buying opportunity.”

Does this signal the end of the buy-to-let market? It puts a question mark over the buy-to-let market and the prospects for hundreds of thousands of landlords in Britain. The number of B&B buy-to-let borrowers who are more than three months in arrears has shot up from 1,995 to 3,037 in the space of four months.

Landlords who bought inner-city flats in some parts of Britain at the top of the market are facing real difficulties because of a shortage of tenants and property values that have collapsed by far more than the national average.

However, most landlords with reliable tenants are experiencing little stress and rents in most regions are rising quite strongly.

Another area of difficulty for B&B is its dominance in self-certified mortgages, also known as “liars’ loans”. For these loans, the bank does not require proof of income. The bank’s self-certified borrowers in arrears of more than three months have gone up from 1,433 to 1,978 in the past four months.

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