Soaring demand for mortgages fuelled by the UK housing boom helped Nationwide post a 21% hike in annual profits today.

Britain's biggest building society said net mortgage advances grew 81% to a record £13.2 billion as it said it continued to capture business from rival lenders.

It overhauled Barclays Bank to become the fourth largest mortgage lender in the UK during a year in which pre-tax profits rose to £426.8 million.

The rebound in lending comes just two years after Nationwide's share of the mortgage market slumped to 3.1% in the wake of the decision to offer the same rates to existing customers that it gave to new ones.

This meant scrapping the discount rates for new customers which were traditionally used to entice them to borrow from Nationwide.

Chief executive Philip Williamson said the "outstanding" results proved building societies could price products fairly and still generate a healthy level of profit.

Net mortgage lending would increase at a slower pace over the next 12 months as the housing market started to cool down, he added.

Mr Williamson said: "We don't anticipate pushing our mortgage business as aggressively next year. Our net mortgage lending will more closely reflect our market share at around 10%."

Low unemployment and a stable economy also meant fears of a bubble in the housing market were unfounded - despite the prospect of higher interest rates.

"We believe some of the language that has been used by a number of commentators has been slightly emotive and inappropriate," Mr Williamson added.

"Words such as 'crash' and 'slump' are totally inaccurate. There will be a progressive slowdown over the remainder of this year."

Arrears were at a record low, with just 56 properties in possession during a year in which 1.2 million people borrowed from the Nationwide.

Demand for online products continued to grow, with more than 1.7 million members now registered for internet banking.

The launch of the "One Minute Mortgage" and improved processes for credit cards, overdrafts and travel money pushed up web sales by 68%.

A record £1.4 billion of mortgage business was conducted via the internet and telephone, Nationwide said.

The company added that its savings business had enjoyed a strong year with deposits up by £5 billion to total £65.9 billion.

Growth in new current accounts had continued since the beginning of October, with 500,000 opened during the year. There was also a surge in credit card business, with new cardholders up 25% and 868,000 cards now in use.

Thursday May 20, 2004