A branch of the Nationwide Building Society on Putney High Street in south west London. Nationwide Building Society have today reported a drop in its pre-tax profits.

Nationwide has warned that its profits will come under pressure from intensifying competition in the mortgage market, even as it reported its highest lending since the financial crisis.

Total mortgage lending by the UK’s largest building society increased by 20 per cent over the past year to £32.6bn, representing 14 per cent of the market.

The increase comes after mortgage rates have dropped to a record low in the past year, with attractive offers from new “challenger” banks seeking to grow and established lenders vying for a larger slice of the market.

Nationwide said on Tuesday that its net mortgage lending, which accounts for mortgages being repaid, rose to £9.1bn over the past year, representing a fifth of the market.

However, Joe Garner, Nationwide’s new chief executive, said that there was “clear evidence” of more “sustained competition”, resulting in “further margin pressure” during the year ahead.

He estimated that the building society would need to generate profits of between £1bn-£1.5bn a year over the medium-term, in order to properly invest and support customers.

Lending growth spurred Nationwide’s statutory profit increase by 23 per cent over the period to £1.3bn.

Last month, Tesco Bank launched into the broker market, offering mortgages through intermediaries for the first time. More than three-quarters of mortgages in the UK are obtained through brokers rather than banks directly.

HSBC, which entered the mortgage broking sector in 2014, formed a deal with three intermediaries in April to expand its growth in the sector.

Mr Garner expects that the “increased switching and redemption behaviour” of mortgage customers is a trend “which is likely to continue” as lenders offer highly competitive rates.

Nationwide recently extended the maximum age limit for mortgages from 75 to 85 — the highest threshold of any high street lender.

Alongside mortgage growth, Nationwide opened some 525,000 new current accounts over the year marking a 12 per cent annual increase, as the net number of customers switching to the building society jumped by nearly 40 per cent.

The figures come a week after the competition watchdog proposed remedies to increase competition in retail banking, based on helping to boost the number of current account holders moving between banks.

Mr Garner, the former head of BT’s Openreach division who joined as chief executive of Nationwide earlier this year, said the building society’s loyalty accounts and regular savings products had led to an increase in deposits of £6.3bn over the year, up from £1.9bn.

He said: “We stood by our members’ borrowing needs through the difficult financial crisis and over the four-year period to March 2016 accounted for 36 per cent of net mortgage lending in the UK.”

Mr Garner’s appointment at Nationwide marks a departure from the building society’s previous decisions to appoint internal candidates as its last three chief executives, in a sign it needed external expertise to lead its digital development.

He said that although Nationwide “is not in need of radical reform” it is an organisation that “should constantly challenge itself” on ways it can improve and offer an enhanced level of service to its members.

“The blend of digital innovation and human contact is a powerful combination and the key to our success in the future.”

Separately, Clydesdale and Yorkshire banks reported a statutory profit of £58m in the six months to the end of March, compared with a £440m loss a year ago, in its first set of results since floating on the London Stock Exchange in February.

The challenger bank was forced to set aside a further £450m to cover the mis-selling of payment protection insurance, although the bulk of this was funded by a conduct indemnity set up by former parent company National Australia Bank.

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