Nationwide's mortgage lending to homebuyers slid almost 17 per cent to £10.9 billion during the six months to the end of September as the UK's biggest building society felt the effects of the tumbling housing market.

The building society's gross residential lending volumes dropped from £13.1 billion over the same period last year, the lender said today. Its net residential lending volumes crumbled from £3.6 billion to £1 billion.

The fall underscores the dire effects of tumbling house prices, which have slowed the house buying market to a virtual standstill in some parts of the country.

Last week, Halifax, Britain's biggest mortgage lender, revealed that house prices in October had fallen by 15 per cent compared to the same month last year.

The collapse in market confidence helped spur the Bank of England into a 1.5 per cent cut in interest rates last week in a desparate bid to revive spending and head off the impact of the coming recession.

Unlike several other high street lenders, Nationwide is passing on the benefits of the cut to its customers.

The society is owned by its almost 15 million members. With about 1,000 branches across the country and approaching £200 billion of assets, Nationwide is seen as a barometer of sentiment in the housing market.

Graham Beale, Nationwide's chief executive, said today that the society expected house prices to continue falling into next year and possibly 2010.

Prices sank for the eleventh consecutive month and are now 12.4 per cent lower than a year ago, with the average property worth £167,797, the lowest since February 2006.

"Rate cuts will help to minimise payment difficulties and alleviate payment shock as borrowers reach the end of their existing deals," he said. "Reducing prices will improve affordability, which should bring about a recovery in the first time buyers' market."

Commercial mortgage lending more than halved from £2.8 billion to £1.2 billion for the six months, Nationwide said

Nationwide reported an 11 per cent increase in pre-tax profits to £374 million for the six months to the end of September, despite the slowing market.

However, underlying pre-tax profits fell 18 per cent, from £394 million to £322 million. Nationwide said this was because of the increased costs of funding in the wholesale markets and its decision to hold very high quality assets.

The impact of the credit crunch has left some building societies shut out of the wholesale funding markets and helped prompt a round of merger and acquisitions activity.

Nationwide has recently unveiled the planned acquisitions of the Cheshire and Derbyshire building societies, to consolidate its position at the top of the UK's mortgage lenders.

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