Bradford & Bingley has reignited fears over the UK's mortgage market with a warning over profits as well as a £179 million cash injection from a US private equity firm.

Britain's biggest buy-to-let lender shocked the banking sector with reports of rising numbers of borrowers falling behind with their repayments.

The group took a £36 million hit from higher arrears and cautioned that full-year profits will be below market expectations as defaults are set to rise further.

Bradford & Bingley (B&B) also confirmed it was selling 23% of the business to private equity firm Texas Pacific Group (TPG) to shore up its shaky finances.

B&B, which accounts for around a fifth of the UK's buy-to-let market, said it had accrued an £8 million pre-tax loss in the four months to the end of April after arrears climbed sharply and it took a further £89 million hit from the credit crunch.

A pert of the new moves, the group restructured its recently-announced rights issue, with shareholders - including more than 850,000 small private investors - now being offered shares at 55p, rather than the previous 82p.

It means the move will raise £258 million instead of the £300 million proposed when the controversial exercise was announced in May.

B&B provoked anger in the City by going back on statements that it did not need to carry out such a fundraising exercise.

The new developments came a day after B&B said chief executive Steven Crawshaw had stepped down for health reasons.

The former building society, which is the UK's eighth largest bank, saw shares plummet more than 30% at one stage as stocks fell across the wider banking sector.

B&B said arrears levels had risen to 2.16% against 1.63% at the end of December for people three months or more behind with repayments.

The number of borrowers who miss repayments is set to increase further amid a housing market slowdown and economic uncertainties, although it said arrears should increase at a slower pace in the

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