Shares in the major West Midlands mortgage firm Paragon lost a quarter of their value in less than an hour today after warnings that it could collapse because of the global credit crunch.

The Solihull-based firm, the UK’s third largest buy-to-let mortgage firm, saw its shares suspended at one stage yesterday after they lost half their value, falling more than 50 per cent to 100p. 

They later finished the day at 125p but nosedived again today, falling 24 per cent to 95p in early trading.

Paragon, which employs 700 people in the West Midlands, revealed yesterday it needs to find an extra £280 million but the credit crunch had made it too expensive to borrow money from the banks and big lenders.

Despite announcing record pre-tax profits of £91 million and mortgage advances of £4.4 billion in the 12 months to the end of September, Paragon said it might have to sell new shares to repay a £280 million credit facility. 

Analysts believe Paragon has until February to try and secure the funding it needs. If not, it is thought it may have to sell itself or even wind down.

Also moving to shore up its finances yesterday, mortgage lender Bradford & Bingley sold £4.2 billion of loans to boost its cash reserves at a time of soaring wholesale funding costs.