Paragon, the troubled buy-to-let lender, is set to come under attack from HBOS, one of its main rivals. The Times

Birmingham Midshires, Britain’s second-largest buy-to-let lender, which is owned by HBOS, will begin offering a cheap buy-to-let mortgage deal tomorrow that could grab market share from Paragon as it struggles to win new business.

The move comes at a critical time for Paragon, whose shares dived by more than a third yesterday as fears intensified about its funding. Paragon said on Tuesday that it may collapse if it fails to secure £280m of emergency funding over the coming weeks. Even if the fund raising is successful, Paragon could close to new business if it cannot secure fresh credit.

Paragon has no retail savings customers, so, like Northern Rock, it is at the mercy of wholesale lending markets for securing new finance. The cost of borrowing based on three-month sterling Libor rates rose to 6.52% yesterday, the highest for two months.