Bradford & Bingley, the nationalised mortgage lender, has laid bare the dire state of its loan book and said that a rising wave of fraud dragged it to a £160 million loss for the first half of the year.

The figures came the Council of Mortgage Lenders warned that the economy remained fragile and predicted that repossessions and arrears would continue to climb this year.

The CML has forecast that 65,000 people will lose their homes this year, up from 40,000 last year and just under 26,000 in 2007.

B&B, which was the UK’s largest lender to landlords before it was broken up and its mortgage book nationalised last September, said yesterday that 40 per cent of its mortgage book was in negative equity, up from 30 per cent at the end of 2008.

Impairments on bad loans ballooned from £75 million last summer to £328 million.

B&B has 60 per cent of its book in buy-to-let and 20 per cent in self-certified loans, sometimes called “liars’ loans” as borrowers did not have to provide proof of salary.

B&B, which flagged up a spike in fraud last year, warned that the trend was rising, and increased its provision by almost £100 million between January and June.

That brings the total provision for fraud and professional negligence to £271 million, a figure described by an industry insider as “extraordinary”.

As well as some customers apparently lying about their income, there is evidence of cases of property valuers and solicitors falsely inflating the value of properties, B&B said. Some of the fraud-related loss may be reclaimed on insurance policies, it added.

Customers falling more than three months behind on repayments rose to 5.88 per cent of the book, from 4.6 per cent at the year-end.

Richard Banks, a mortgage industry veteran who joined B&B as managing director three months ago, attempted to strike an optimistic note by echoing the sentiment of Lloyds last week that the worst was over. “Arrears appeared to have peaked and started to go down modestly in the past two months,” he said.

The Government sold B&B’s £21 billion of deposits to Spain’s Santander but could not find a buyer for its £41 billion mortgage portfolio and was forced to nationalise it.