The group said it made £322 in pre-tax profits in the first six months of its financial year, down 18% from £394 million a year ago.

It also posted rising losses from borrower arrears and the credit market crisis.

Its bad debts rose by more than a fifth to £74 million as borrowers struggled with repayments and Nationwide said it was forced to write down the value of assets by £416 million.

The mutual – the UK's biggest building society – said its net residential mortgage lending plunged by more than two thirds from £3.6 billion to £1 billion as it reined in lending amid the credit crunch.

Its share of the net lending mortgage market fell to 5.6% from 6.2% this time last year.

The Nationwide said the clampdown came as it sought high quality borrower business and aimed to trim lending to avoid turning to expensive wholesale money markets for funding.

Nationwide funded lending in the six months to September 30 entirely through retail deposits, at £2.6 billion.

It said its share of the retail deposits market almost doubled to 34%, up from 18% last year as savers made a "flight to safety".

But it paid a higher price to attract savers amid heightened competition and said this hit underlying interim profits.

Graham Beale, chief executive of Nationwide, said house prices would continue to fall by 1% to 1.5% a month at least for the remainder of the year.

But he added there was hope the market would see a turn around as the price falls and lower interest rates began to help buyers come into the market.

Nationwide was one of a number of lenders to pass on the Bank of England's 1.5% base rate cut on standard variable mortgages last week amid reports that the Government had pressured them to make the cuts.

Mr Beale remained tight-lipped on the part played by the Government, but said there was "no conflict" between the interests of politicians and its members in the decision.