Britain's biggest buy-to-let mortgage provider expects to halve its loans

Solihull-based company Paragon also admitted staff numbers will be reduced by one third as lower levels of business are leading to cuts.

The group employed an average of 763 people last year, but said the figure was likely to be come down by 30 per cent by the start of September.

Scroll down for more...

The credit crunch has hit mortgage provider Paragon hard

It claimed it retained the capacity to resume lending at higher volumes when market conditions allowed.

Paragon, which recently required a £285 million rights issue to ward off a funding crisis, said redundancy costs and the impact of raising the new funds would result in lower pre-tax profits in the six months to March 31.

However, it explained operating profits were in line with management expectations.

The company claims the performance of its buy-to-let lending book remained "exemplary" with arrears at similarly low levels to recent years.

It also said recent data from the Royal Institution for Chartered Surveyors showed continued high levels of tenant demand and strong rental growth.

In a trading update it stated: "Whilst sentiment in the housing market has deteriorated in recent months, the private rented sector remains strong."

Paragon's main financing facility stopped advancing funds from the end of February, putting pressure on its ability to carry out new lending.

The company's funding model has been largely reliant on wholesale money markets, which have dried up since the summer's credit crunch.

It was forced to turn to shareholders for new cash as a £280 million corporate lending facility had been due for repayment.

Paragon said: "The credit environment remains difficult, impacting the workings of the money, banking and capital markets. We continue to expect a return to market stability and to more normal lending activity by the group in due course.

"In the meantime, the board will continue to apply its prudent management approach to the servicing of its loans and to the identification of funding sources for future loan originations."

Numis Securities said it expected Paragon to report pre-tax profits of £64.9 million this year, compared with £91 million last time. The figure could fall to £40.6 million in 2009, it added.