Nationwide: mortgage lending drops 40%

Nationwide today said new mortgage lending dropped by almost half last year as the UK's biggest building society looked to weather the credit storm.

The society lent £6.7 billion on new mortgages in the year to April 4 - 40 per cent below the previous 12 months - although underlying pre-tax profits rose 17 per cent to £781.1 million.

Nationwide funded the lending entirely through retail deposits, which trebled to £9.1 billion as worried customers sought a safe haven for their cash.

The group said its mortgage arrears were less than a third of the industry average as its focus on lower-risk borrowers paid dividends.

But Nationwide also predicted lower house prices this year and added it was "difficult to predict" how long the tough current market conditions would last.

Chief executive Graham Beale described the crunch as "unprecedented", and added: "It will be the first quarter of next year before we are through the worst of this."

The mutual's share of the new mortgage market shrank to 7.1 per cent - compared to 11 per cent a year ago - as it looked to focus on quality rather than share. Mr Beale said he would be "comfortable" with a similar share in the current year.

"We will continue to monitor our activity so we don't put undue pressure on our balance sheet," the chief executive added.

An average borrower with a 10 per cent deposit is now paying an interest rate between 1 per cent and 1.5 per cent higher than a year ago for a two-year fixed deal, Nationwide said.

But as lending declined, the mutual gathered strength in the savings market as customers rushed to save, boosting its market share to 19 per cent.

Mr Beale said the building society had opened 1.5 million new savings accounts - equivalent to 4,000 a day - with almost £1 in every £5 saved in the UK going into a Nationwide account.

Nationwide said it had no direct exposure to the crisis hit US sub-prime housing market - which sparked last year's crunch - although it took a £102.2 million write down on other financial vehicles hit by the market turbulence.

The mutual has also boosted its balance sheet with liquidity almost doubled to £27.3 billion.

Nationwide completed its merger with Portman last August, giving it more than 900 branches and 14 million members. The society plans to make around £90 million in cost savings through the deal by 2011.