Falling house prices and the seizure in the mortgage market have heightened fears that Bradford & Bingley could be the next bank in trouble.

Its shares slid by more than 3 per cent to a record low of 29p yesterday. Last summer they were changing hands for about £4.50. Speculation intensified earlier this week after the credit reference agency Moody’s slashed B&B’s rating to one notch above a junk bond. The rating, which investors use to identify the security of their investment, is nine notches below the top rating enjoyed by institutions such as Lloyds TSB.

Moody’s said that it downgraded the rating because of B&B’s focus on buy-to-let and self-certification deals, which have a much higher default rate than standard home loans. B&B said its mortgage arrears had surged by 50 per cent in the first half of the year, a far bigger increase than many of its rivals. It revealed plans yesterday to increase staff numbers in its arrears department to cope with the increasing number of customers falling behind with their payments. However, B&B dismissed claims that it was in trouble. Richard Pym, the chief executive, said: “We are disappointed by Moody’s action. The funding foundations of B&B are very solid.”

B&B admitted last month that it had fallen victim to gangs posing as mortgage borrowers, and was forced to set aside £18 million to cover the losses. The bank reported pretax losses of £27 million in the first half of the year.

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