Britain's housing market will suffer a sharp slowdown during the second half of the year, leading to average annual property price rises this year of as little as 5 per cent, Nationwide, the country's second-biggest mortgage lender, cautioned today.

Graham Beale, the new chief executive, said: "Our forecast for house price growth is 5 per cent to 8 per cent in 2007, reflecting a cooling in the second half of the year as increased interest rates filter through."

Nationwide's most recent survey, published at the end of April, showed annual price inflation at more than 10 per cent, with London and the South East leading the way.

Other surveys have shown an annual growth pace up to 10.9 per cent for the whole country and 14 per cent for London. But despite this, Mr Beale today stuck to his forecast that property prices will grow this year by between 5 per cent and 8 per cent, a prediction he made almost six months ago.

Britain's biggest building society delivered its forecast as it reported a 16.6 per cent increase in pre-tax profits to £652 million, in part thanks to surging house prices.

Nationwide said that its net lending to residential customers was up by 77 per cent at £11.2 billion, giving it a 10.2 per cent share of the mortgage market.

The society's assets, which also include savings, loans and insurance policies, rose by 13.9 per cent over the year to £137.4 billion.

Eralier this year, Nationwide struck a deal to merge with Portman, its nearest and smaller rival. That deal is expected to complete at the end of August.

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