Nationwide, Britain's biggest building society, halved its mortgage lending last year as it halted an aggressive expansion drive and turned to retail savers to fund growth in the face of the credit crunch.

The society, owned by its 14 million members, also revealed a £102.2 million impairment charge as a result of its exposure to six structured investment vehicles (SIVs), which had to be restructured.

Esoteric and highly geared SIVs were thrown into turmoil last year after they were unable to borrow to cover their funding costs and were forced into asset fire sales.

The society, the second largest UK mortgage provider, said net residential mortgage lending totalled £6.7 billion over the 12 months to the beginning of April.

Last year, Nationwide lent its customers £11.2 billion over the same period.

Nationwide said it had chosen to take a "conservative and sustainable approach to lending". The move meant that its market share fell from 11 per cent to 7.1 per cent.

Graham Beale, the chief executive, said: "We funded our net lending in the year entirely from retail receipts."

"Until we are confident we have normality back in the market place, in terms of our ability to fund comfortably, we will continue to run on a cash flow model, so we will continue to moderate our lending activities," Mr Beale told reporters on a conference call.

At the same time, the society insisted that it had been able to borrow funds on the wholesale markets. It welcomed moves by the Bank of England to inject liquidity into the London interbank lending markets.

The sharp lending decline at Nationwide, second as a home loans provider to Halifax, owned by HBOS, underscores how the collapse in confidence in the US housing market has pushed British lenders into retreat.

The announcement came a day after Paragon, the buy-to-let lender, said it had also halved its lending in the first half of its financial year.

Nationwide said it chose to adopt a more cautious policy early last year but that lending had fallen off particularly sharply during the second half.

Despite the lending decline, Nationwide reported a 5 per cent increase in pre-tax profits to £686.1 million and a 17 per cent improvement in underlying profits for the year.

The society, which took control of its smaller rival the Portman last year, said it had retail deposits of £9.1 billion - a market share of about 19 per cent.

It expects to save £90 million a year as a result of the merger, which was expected to prompt a rush to consolidate among the UK's building societies, some of which have been shut out of the interbank market.

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