Nationwide lending down sharply

Nationwide bought the Portman building society last year

The value of mortgages agreed by the Nationwide building society fell 40% last year as tough credit conditions led it to scale back lending.

It agreed mortgage loans worth £6.7bn, down from £11.2bn the year before, describing its lending policy as "conservative and sustainable".

The figures are in line with industry forecasts for a sharp reduction in total mortgage lending this year.

Nationwide also reported a 5% rise in annual profits to £686.1m.

Profits were boosted by a sharp rise in retail deposits placed with the building society.

Risk profile

Lenders have scrapped hundreds of deals in response to the credit crunch.

Whilst the environment will remain challenging, the market now has a much more transparent and realistic view of the cost of risk Graham Beale, Nationwide chief executive

This has made life more difficult for people trying to renegotiate their mortgages at different rates and for first-time buyers looking to get on the property ladder.

The number of new mortgage loans from all lenders slumped to a 33-year low in the first three months of 2008 and lending levels are about 40% lower than last year.

The Nationwide has also become more cautious about making unsecured loans to customers.

The value of its outstanding unsecured loans shrank last year by £0.2bn as it turned down three out of every five personal loan applications.

Mortgages

In an effort to boost confidence in the banking and housing markets, the Bank of England recently made extra funds available to banks to encourage them to start lending to each other again.

In response, the Nationwide cut some of its fixed-rate loans for new borrowers by up to 0.3% but many other lenders have not followed suit.

Issuing its results for the year to 4 April, the UK's second-largest mortgage lender said market conditions remained tough.

"Whilst the environment will remain challenging, the market now has a much more transparent and realistic view of the cost of risk," said chief executive Graham Beale.

"We welcome the Bank of England's recent initiative and continue to work with the regulatory authorities in their efforts to deliver liquidity support to the markets.

"This should ease increased funding costs and contribute towards the recovery of more normal conditions."

Separately, property firm Grainger said conditions were "unquestionably difficult" in the property market.

Shares in the residential landlord, which owns more than 14,000 properties in the UK, fell 1% after it said market weakness would hit its trading and financial position this year.

The credit crunch is also leading firms to review their investment in commercial property, according to research from the CBI and GVA Grimley.

They found that the number of companies likely to reduce their property assets in the near future had increased sharply in the past six months.