Britain's biggest building society, Nationwide, doubled its profits in the past nine months and has primed its balance sheet with cheap money from the Bank of England to keep up a rapid pace of mortgage lending.
The society tapped the Bank's Funding for Lending Scheme (FLS) for an extra £4bn in January, almost matching the £4.5bn it borrowed in the first 16 months of the scheme. This was in reaction to the Government's decision to change FLS so that it could only be used for lending to small and medium-sized businesses from the end of January.
Nationwide's chief executive, Graham Beale, said: "We have effectively pre-funded the balance sheet for lending for the coming year. We have actually already lent far more than we have borrowed through FLS with net lending of £8.4bn in the nine months to December and £15bn over the length of the scheme."
On average, borrowing money from the Bank has cost Nationwide around half a percentage point less than borrowing from wholesale money markets, although the gap has narrowed as the scheme has pumped extra liquidity into the market.
Mr Beale does not believe this has fuelled a potential housing bubble. He said: "I've spent a long time looking at the last housing crash in the early 1990s. The difference today is that employment figures remain strong and affordability of housing is still good.
"While there is growth in the number of transactions and house values, both are below their pre-crisis peaks. London is an anomaly because of special external factors," he added.
Nationwide increased gross lending by 34 per cent to £21.6bn in the nine months to December and net lending was £8.4bn, an increase of 58 per cent. Savings balances grew by £5.8bn, while customers opened 316,700 new current accounts as Nationwide was "a net beneficiary" of easier, seven-day switching rules that came in last autumn. Its share of the current account market, however, remained static at 6 per cent.
Underlying profits doubled to £539m. Mr Beale said the combination of retained earnings from those profits and the £550m raised through an issue of core capital deferred shares in December meant it should hit the Prudential Regulation Authority's order to remove a £1bn gap in its balance sheet ahead of the target of December 2015.