Bradford & Bingley has seen a rise in arrears in its mortgage book triggering fears the taxpayer could be exposed to potential losses.

B&B was taken into state control after the collapse of Lehman Brothers shook confidence in the global banking system. B&B’s branches and savings operations were transferred to Santander of Spain leaving the taxpayer with B&B’s £42bn mortgage loan book, which is expected to run down over time.

Yesterday Moody’s, the ratings agency, said mortgages that were three months in arrears at B&B’s Aire Valley Master Trust – B&B’s mortgage securitisation vehicle – jumped to 2.3% of the loan book in the third quarter. This was up from 0.8% in the same period in 2007.

The third-quarter numbers show a deterioration from the second quarter when arrears were 1.45%.

The figures underline concerns about the quality of B&B’s mortgage loan book because its securitisation programme contains only the best quality mortgages that were written by B&B.

Financial Times