The buy-to-let specialist said it would rein in lending until the economy improved and attract more saving deposits after a "very challenging" first half of 2008.

B&B fell £26.7m into the red - its first loss for four years - compared with profits of £180.4m in the same period last year.

Bad debt charges on its lending jumped to £74.6m from just £5.3m last year as more borrowers struggled to keep up payments.

As previously announced, B&B took an £18m hit from organised fraudsters hitting the wider buy-to-let sector by gaining bigger mortgages than properties are worth.

It said: "In the light of continuing weakness in the housing market and the wider economy, we continue to expect arrears and repossessions to increase for the remainder of the year, although we will be putting further resources into tackling the problem."

B&B repossessed 717 homes in the first half - compared with 471 a year ago - with mortgages more than three months in arrears almost doubling to 8,854.

The firm also wrote off £155m on complex treasury investments hit by the continuing financial turmoil.

The results, described as "little short of appalling" by Collins Stewart analyst Alex Potter, cap a turbulent six months for B&B.

Mr Potter said: "Looking forward, the guidance is for margins to continue falling and arrears to continue rising. The earnings outlook is very weak."

The lender's finances have been battered by the credit crunch, it has lost its chief executive and unsettled the City with twice-rehashed plans to strengthen its finances by raising money from shareholders.

The company eventually succeeded in raising £400m after a botched rights issue process, which chairman Rod Kent called a "tortuous journey" but strengthened the firm's funding position.

But it sought to reassure investors over the strength of its main buy-to-let market, where it said tenant demand remained strong amid rising rents.

Mr Kent added that buy-to-let - which accounts for more than half of its mortgage book - was performing better than its portfolio of acquired loans, with new chief executive Richard Pym calling the sector "good banking business".

Mr Pym added: "Only where we have stretched lending criteria have we had a problem, and we are not going to do that again."

B&B's proportion of mortgages more than three months in arrears currently stands at 2.29 per cent. But arrears rates on the loans it generates itself stand at 1.78 per cent, compared with 5.11 per cent on the acquired loans which make up around 20 per cent of its £41.3bn mortgage book.

The firm is attempting to renegotiate the terms of a deal under which it is contractually obliged to buy mortgages from US financial services company GMAC. It is currently buying the bare minimum of GMAC loans as arrears rise.

Mr Pym - the former boss of Alliance & Leicester who joined last week - will set out his plans for the business in the autumn, with the group looking at cutting costs and boosting retail deposits in an "extraordinary market climate".

The company has boosted savings deposits to £22.2bn since the end of the year.

The negative coverage of the group's rights issue - including the withdrawal of a private equity firm which planned to buy a 23 per cent stake in the lender - caused some customers to pull out their savings in June and July, although this trend abated in August.

B&B's shares fell three per cent today in reaction to the results. Overall, the stock has fallen almost 90 per cent during a painful past 12 months for the lender.