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Paragon, the UK's third biggest buy-to-let lender, has become the latest victim of the credit crisis.

Announcing its preliminary annual results today the company revealed "deep turmoil" in the credit markets had affected the normal financing activities of its business.

The lender also warned while it expected conditions on the credit markets to improve during 2008, the timing and extent of the recovery would impact upon its future outlook.

News of Paragon's financing problems saw the company's share price slide in trading this morning.

The company usually raises its funding through the process of securitisation, through which it bundles up its loans and sells them on.

But in the wake of the global credit crunch, prompted by rising default levels in the US sub-prime mortgage market, that avenue of funding has effectively dried up.

Paragon also has a £280 million corporate lending facility, which is due to be repaid in February.

However the company said today the terms offered by its lenders to renew the facility "are not attractive" and stressed it may have to use a rights issue to raise the money if alternative funding arrangements do not emerge.

Investment bank UBS has agreed to underwrite such a rights issue, Paragon confirmed.

Confirmation of the company's problems is likely to renew fears about the emerging impact of the credit squeeze, whose most high profile victim to date has been beleaguered lender Northern Rock.

The Newcastle-based bank was forced to turn to the Bank of England for an emergency loan in September due to liquidity problems and the company's own share price also slumped further today amid concerns that a buyer will not come forward with a rescue package for the troubled firm.

However Paragon, which has confirmed it is cutting 60 jobs at its Epsom office, has stressed the actions it is taking will protect its business ahead of the anticipated recovery on the credit markets.

"The current environment, whilst immensely disruptive, is driven by market-wide funding concerns and the actions taken by the group will ensure that the embedded value in the business is protected whilst providing a base for future profitable lending when credit markets recover," said Paragon chief executive Nigel Terrington.